To most punters, the thrill of an auction lies in its unpredictability. But auctions are meant to set prices efficiently, which ought to mean that, in an open auction, similar items fetch similar prices. This is especially true for goods with a published “book value”, such as old coins and stamps.
But an analysis of auctions on eBay, the Internet’s most popular auction site, has found otherwise. Chuck Wood of the University of Notre Dame in Indiana and Robert Kauffman of the University of Minnesota used an Internet software agent (or “bot”) known as eDrill to gather data on thousands of eBay coin auctions from 1999 to 2001. At a conference in Miami this week they reported that the price of a coin sold on eBay depends on factors that have nothing to do with its book value.
The most surprising finding was that an item sold at a weekend commanded a price around 2% higher than the same item sold on a weekday. This effect persisted across all three years of the study and showed no sign of tapering away. The researchers suggest that bidders may have more time to consider their purchases at weekends, and may then decide to pay more.
A much larger mark-up was associated with items advertised with pictures. In 1999 a picture was worth a 5.7% premium; by this year, that had risen to 11.3%. Another variable gaining in strength is the effect of a seller’s eBay “reputation score”. This signifies buyers’ ratings of a seller’s trustworthiness. In 2001 Dr Wood and Dr Kauffman found that high-rated sellers sold coins for 6.8% more than low-rated ones; in 1999, the difference was only 4.8%. Selling savvy, it seems, counts for more every year.
Price can also rise as a result of less savoury practices, such as shilling, when a seller covertly places so-called “shill” bids with the aim of driving up the sale price. Dr Wood and Dr Kauffman are testing software that tries to detect shill bidders, who tend to enter auctions early, raise their bids rapidly and exit without trying to win, while ignoring concurrent auctions of identical items.
Would eBay take advantage of these findings to catch shill bidders? Perhaps not: the higher the sale prices, the larger eBay’s commission. But its 30m users would surely benefit from such sleuthing software. Perhaps Dr Wood and Dr Kauffman will auction a copy — at a weekend, and with a photo, of course.
Copyright © 2001 The Economist Newspaper and The Economist Group. All rights reserved.