Intra-transactional Interaction in Internet Auctions: The Impact on Outcomes

Abstract

AbstractWe report results from empirically examining the effect of intra-transactional interaction in internet auctions on auction outcomes. A widely reported problem with internet auctions is the issue of information asymmetry between sellers and buyers resulting in adverse selection. We argue that rich information exchange among buyers and sellers while an auction is in progress (“live interaction”) can address this problem. Live interaction can have significant benefits toward achieving successful outcomes such as meeting the auction reservation price and obtaining price premiums. This is particularly true in the case of products that have relatively high value and possess a complex set of product attributes. Using data from a popular internet auction site, we test this proposition with a data set of 990 used car auctions. A particular feature of this site is that the interactions are publicly viewable, thereby enhancing the likelihood of increased participation in the auction. The proposition is tested using logistic regression models. The results show that the ability of participants to engage in intra-transactional conversations with sellers is significantly related to achieving positive outcomes such as meeting the auction reservation price and obtaining price premiums.KeywordsInternet auctionsInternet auctionsOn-line marketplacesOn-line Platform designAuction participant behavior