Online Bidding Tips

The auction Web site known as eBay has become a vast marketplace, bringing together buyers and sellers of all sorts of goods. It has also become a handy laboratory for testing ideas in economics about markets and prices.

In general, auctions ought to serve as an efficient mechanism for setting prices. Consequently, you would expect that similar items would fetch similar prices.

It turns out that on eBay, comparable items may sell for different prices, depending on such factors as whether the sale occurred on a weekend and whether a picture accompanied the item description.

These insights come from an ongoing study of rare-coin transactions on eBay, conducted by Charles A. Wood, a management professor at the Mendoza School of Business at the University of Notre Dame, and Robert J. Kauffman of the information and decision sciences department of the University of Minnesota. Wood reported the team’s findings at the annual meeting of the Institute for Operations Research and the Management Sciences (INFORMS), held earlier this month in Miami Beach, Fla.

Starting in 1999, Woods and Kauffman gathered information on a total of 7,362 eBay transactions involving rare coins. “Coin collectors have a very developed language that describes not only the specific mint markings on a coin but also the grade of a coin,” explains Wood, who is himself a coin collector. “By examining so many coin auctions, we are able to compare exact items and then tell if these identical items sell for more or less.”

In one surprising result, the researchers found that coins sold in auctions that end on a weekend sell for about 2 percent more than coins sold in auctions that end on a weekday. They obtained roughly the same weekend premium for all three years of the study despite a significant increase in the number of buyers and sellers participating in the auctions.

“The weekend effect is relatively stable over time,” Wood says. “People pay more on the weekend for the same item, and auctions that end on the weekend receive the benefit of this.”

Pictures also make a difference. In 2001, items shown in an accompanying image sold for an average of 11.3 percent more than identical items without an accompanying image, nearly double the premium in 1999. “The effect of picture on price is increasing,” Wood notes.

In the long term, he cautions, “if every seller then starts incorporating advanced features [such as images] in their auctions, this will become a matter of comparative parity, where you don’t receive any benefit from incorporating these features, but need to incorporate them merely to sell your item.” Right now, however, the advantage clearly goes to the pictured item.

The longer an auction runs, the more bidders it attracts, and the item tends to sell at a higher price. The positive effect of longer auctions is decreasing, however, as the total number of buyers and sellers increases. “If this trend continues, it indicates a higher liquidity in auction markets where sellers do not need as much time to liquidate items placed on sale,” Wood says. Moreover, with a larger market, “it is easier to attract aggressive bidders to your auction who will bid up the price of your item to an appropriate level.”

Finally, experienced sellers with high eBay ratings tend to sell their items for higher prices than do inexperienced sellers. Reputation apparently makes a difference.

In sum, from a buyer’s viewpoint, it’s best to avoid weekend sales, long auctions, illustrated items, and experienced sellers!

The effects found for coin auctions probably hold for many other commodities and even in other types of markets. One confounding factor, however, may be the age of the participants.

“The typical coin collector is a lot older than the typical, say, Pokémon card collector,” Wood says. “Some of our results, such as a weekend effect, may differ when the audience becomes younger and thus has different constraints on weekday time. However, whether that difference would increase or decrease the weekend effect is still something to be studied.”

Indeed, there’s a lot more yet to be gleaned from studies of eBay transactions. Wood and Kauffman continue to collect data as they extend their investigations to longer time periods, other items, and different types of auctions.

Clearly, eBay is more than just a marketplace for the avid bargain hunter.

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