eBay Motors Research Articles

Product-Harm Crises and Spillover Effects: A Case Study of the Volkswagen Diesel Emissions Scandal in eBay Used Car Auction Markets

The Volkswagen emissions scandal began in 2015, when the U.S. Environmental Protection Agency announced that diesel cars produced by Volkswagen from 2009 through 2015 were in violation of emissions standards. The authors analyze the impact of this announcement on transaction prices for Volkswagen cars on the U.S. eBay Motors. The main focus is on Volkswagen cars other than the 2009–2015 diesel models—namely, vehicles that did not violate agency standards, enabling an assessment of whether the negative shock received by the emissions standards violators spilled over to other Volkswagen models that were in compliance. The difference-in-differences results show that final bid prices declined after the announcement by 14% for nonviolating diesel cars and 9% for nonviolating gasoline cars. The analysis also provides little evidence of considerable changes in the numbers of participating bidders, bidding strategies, numbers of listings, and reserve-price strategies, suggesting that the drops in prices likely resulted from lowered willingness to pay from buyers.

Shill Bidding, Reserve Price and Seller’s Revenue

Using data from eBay Motors, this paper empirically estimates the prevalence of shill bidding and its effects on the outcomes of online auctions. Since most bidders have partially concealed their IDs, we first develop a procedure to identify the bidders. We then construct a shill-bidding index, wherein we split all auctions into one group which most likely contains shill bids, and another which does not. Our estimates indicate that around 9% of bidders are shill bidders and 22% of all listings contain shill bids. Using the instrumental variable approach for the regression, we show that shill bidding is actually two practices in one. First, it starts the auction with a reserve price as a ratio to the Blue Book price 0.08 lower than the usual auctions, thereby increases trade probability by 0.38%. Second, phantom bids are placed to compete with other bidders, which increase the ratio of the transaction price to Blue Book price by 0.055 on average, but have no effect on transaction probability. The construction of the shill index also enables us to test, and reject, a recent theory that links shill bidding and sniping.

Estimation in English auctions with unobserved heterogeneity

AbstractWe propose a framework for identification and estimation of a private values model with unobserved heterogeneity from bid data in English auctions, using variation in the number of bidders across auctions, and extend the framework to settings where the number of bidders is not cleanly observed in each auction. We illustrate our method on data from eBay Motors auctions. We find that unobserved heterogeneity is important, accounting for two thirds of price variation after controlling for observables, and that welfare measures would be dramatically misestimated if unobserved heterogeneity were ignored.

Online Auctions and Multichannel Retailing

The Internet enables sellers to offer products through multiple channels simultaneously. In particular, many sellers utilize online auctions in parallel to an offline channel in which they offer the item for a fixed price. Using search theory, we develop an analytical model for studying sellers’ pricing decisions and auction outcomes in the context of such multichannel retailing. Our analytical model provides a framework for studying how characteristics of the demand in an offline retail sales channel impact the seller’s optimal reserve price in the auction channel, the probability that an auction ends in a sale, the probability that an item is sold through the auction channel, and the auction expected sale price. We then utilize data from eBay Motors auctions and examine empirically how the quality of a sellers’ retail location impacts the seller’s auctions outcomes. The results of our empirical analysis match the predictions of the analytical model. The online appendix is available at https://doi.org/10.1287/mnsc.2017.2732 . This paper was accepted by Chris Forman, information systems.

Bargaining Versus Posted-Price: Evidence from eBay Motors

This paper empirically compares between bargaining and posted price by using data of the fixed-price and the Best Offer listings in eBay Motors. We first show that, consistent with the view that bargaining incurs higher cost than price posting, the sellers who list more items are more likely to adopt the fixed-price format. We then show that Best Offer results in a higher sale rate than the fixed-price format but, if the item is sold, there's no significant difference in transaction price. Given that the seller usually posts a higher buy-it-now price in Best Offer, this can be explained either by the anchoring effect or the sunk-cost fallacy. Moreover, by identifying a variable as the proxy for the seller's bargaining power, we show that the greater bargaining power the seller has, the more likely she is to adopt the fixed-price listing. This result, though counter-intuitive, is consistent with the theoretical prediction in Bester (1993).

The effect of competition on eBay

I examine the effect of competition on eBay Motors. I specify a simple model of auction choice and show that the expected transaction price falls with an increase in the number of competitors. I then test for this effect using data from 5,500 auctions for Chevrolet Corvettes. To address potential endogeneity of the level of competition, I introduce an instrument which takes advantage of the unique features of eBay. Results indicate that an additional competitor leads to a 6% reduction in the final transacted price ($960 for the average car). Further, I provide evidence that this effect is due to the thinning of the bidder market rather than dynamic bidding.

The Effect of Competition on eBay

I examine the effect of competition on eBay Motors. I specify a simple model of auction choice and show that the expected transaction price falls with an increase in the number of competitors. I then test for this effect using data from 5,500 auctions for Chevrolet Corvettes. To address potential endogeneity of the level of competition, I introduce an instrument which takes advantage of the unique features of eBay. Results indicate that an additional competitor leads to a 6% reduction in the final transacted price ($960 for the average car). Further, I provide evidence that this effect is due to the thinning of the bidder market rather than dynamic bidding.

Buyer behavior under the Best Offer mechanism: A theoretical model and empirical evidence from eBay Motors

We use data from eBay Best Offer listings to analyze haggling over prices in transactions with one seller and a series of potential buyers for a limited-supply product. We characterize this transaction mechanism as a sequential-move game to investigate buyer behavior. Our model suggests that a buyer's offer price increases in relations to the number of buyers who have previously made an offer on the item and the Buy-It-Now price chosen by the seller. On the other hand, the offer price decreases for items which have been listed on eBay for a longer period of time. We empirically test our theoretical predictions using data on the sales of Toyota Camry cars on eBay Motors. The empirical evidence is consistent with our model.

Online Auctions and Multichannel Retailing

The Internet enables sellers to offer products through multiple channels simultaneously. In particular, many sellers utilize online auctions in parallel to other online and offline channels. Using an analytical model and data from eBay Motors, we study seller behavior and auction outcomes in the context of multichannel retailing. Our model shows that seller characteristics which affect the distribution and volume of offers in the non-auction channels impact the probability an auction ends in a sale, the probability an item is sold through the auction channel, and the sale price in case of a sale. The impact on the two probabilities can be negative or positive and depends on whether the seller manages the channels jointly or separately. Our empirical analysis examines how the quality of the seller’s retail location and her electronic commerce capabilities (i.e., two seller characteristics influencing demand in non-auction channels) impact the auction channel outcomes. The results confirm the joint channel management strategy considered in the analytical model.

On Product Uncertainty in Online Markets: Theory and Evidence

Online markets pose a difficulty for evaluating products, particularly experience goods, such as used cars, that cannot be easily described online. This exacerbates product uncertainty, the buyer's difficulty in evaluating product characteristics, and predicting how a product will perform in the future. However, the IS literature has focused on seller uncertainty and ignored product uncertainty. To address this void, this study conceptualizes product uncertainty and examines its effects and antecedents in online markets for used cars (eBay Motors). Extending the information asymmetry literature from the seller to the product, we first theorize the nature and dimensions (description and performance) of product uncertainty. Second, we propose product uncertainty to be distinct from, yet shaped by, seller uncertainty. Third, we conjecture product uncertainty to negatively affect price premiums in online markets beyond seller uncertainty. Fourth, based on the information signaling literature, we describe how information signals (diagnostic product descriptions and third-party product assurances) reduce product uncertainty. The structural model is validated by a unique dataset comprised of secondary transaction data from used cars on eBay Motors matched with primary data from 331 buyers who bid on these used cars. The results distinguish between product and seller uncertainty, show that product uncertainty has a stronger effect on price premiums than seller uncertainty, and identify the most influential information signals that reduce product uncertainty. The study's implications for the emerging role of product uncertainty in online markets are discussed.

Asymmetric Information, Adverse Selection and Online Disclosure: The Case of eBay Motors

Since Akerlof (1970), economists have understood the adverse selection problem that information asymmetries can create in used goods markets. The remarkable growth in online used goods auctions thus poses a puzzle. Part of the solution is that sellers voluntarily disclose their private information on the auction web page. This defines a precise contract -- to deliver the car shown for the closing price -- which helps protect the buyer from adverse selection. I test this theory using data from eBay Motors, finding that online disclosures are important price determinants, and that disclosure costs impact both the level of disclosure and prices. (JEL D44, D82, L81)

Buyer Behavior under Best Offer Mechanism: A Theoretical Model and Empirical Evidence from eBay Motors

The popular Internet marketplace, eBay, introduced the Best Offer format in 2005. This paper studies buyer’s behavior under such a mechanism. We characterize this mechanism as a sequential-move game between the seller of an item and its buyers. Our model suggests that a rational buyer’s offer price increases in relations to the number of buyers who have previously made an offer on the item and the Buy-It-Now price chosen by the seller. On the other hand, the offer price decreases for items which have been listed on eBay for a longer period of time. We empirically test our theoretical predictions using data on the sale of Toyota Camry cars on eBay Motors. The empirical evidence is found to be consistent with our model.

Product Uncertainty in Online Markets: Conceptualization, Antecedents, and Consequences

The Internet interface poses a difficulty for buyers in evaluating products online, particularly experience goods, such as used cars. This increases product uncertainty, the buyer’s estimate of the variance in product quality. However, the literature has ignored product uncertainty and focused on seller uncertainty. To address this void, this study examines the nature, effects, and antecedents of product uncertainty in online auctions for used cars. Extending the literature on markets with asymmetric information, we first conceptualize the construct of product uncertainty and show that is distinct from, yet related to, seller uncertainty. Second, we propose product uncertainty to negatively affect two key success outcomes of online marketplaces - price premiums and transaction activity - beyond seller uncertainty. Third, we propose a set of product information signals to mitigate product uncertainty: (1) the diagnosticity of online product descriptions (textual, visual, multimedia), (2) the level of auction posted prices (reserve, starting, buy-it-now), (3) the existence of third-party product certifications (inspection, history report, warranty), plus intrinsic product characteristics (book value, usage). The proposed model is supported by a unique dataset comprised of a combination of primary (survey) data drawn from 331 buyers who bid upon a used car on eBay Motors, matched with secondary transaction data from the corresponding online auctions. The results distinguish between product and seller uncertainty, show that product uncertainty has a stronger effect on price premiums and transaction activity than seller uncertainty, identify the most influential product information signals, and validate the mediating role of product uncertainty. The study contributes to and has implications for understanding the nature and role of product uncertainty, and identifying how product uncertainty can be mitigated in online environments with the aid of IT.

First Offers on Ebay Motors

We empirically investigate the factors which influence a buyer’s behavior in making an offer to purchase a car listed on eBay Motors using the “Best Offer” option. Our results indicate that a buyer’s first offer is affected by observed information, including the number of buyers making an offer for the same item and the length of time since the start of the listing.

Asymmetric Information, Adverse Selection and Online Disclosure: The Case of eBay Motors

Since Akerlof (1970), economists have understood the adverse selection problem that information asymmetries can create in used goods markets. The remarkable growth in online used goods auctions thus poses a puzzle. Part of the solution is that sellers voluntarily disclose their private information on the auction webpage. This defines a precise contract --- to deliver the car shown for the closing price --- which helps protect the buyer from adverse selection. I test this theory using data from eBay Motors, finding that online disclosures are important price determinants; and that disclosure costs impact both the level of disclosure and prices.

Understanding and Mitigating Product Uncertainty in Online Auction Marketplaces

The Internet interface poses a difficulty for buyers in evaluating products online, particularly physical experience and durable goods, such as used cars. This increases buyers' product uncertainty, defined as the buyer's perceived estimate of the variance in product quality based on subjective probabilities about the product's characteristics and whether the product will perform as expected. However, the literature has largely ignored product uncertainty and mostly focused on mitigating buyer's seller uncertainty. To address this void, this study aims to conceptualize the construct of product uncertainty and propose its antecedents and consequences in online auction marketplaces. First, drawing upon the theory of markets with asymmetric information, we propose product uncertainty to be distinct from, yet affected by, seller uncertainty. Second, based on auction pricing theory, we propose that product uncertainty and seller uncertainty negatively affect two key success outcomes of online marketplaces: price premium and transaction activity. Third, following information signaling theory, we propose a set of product information signals to mitigate product uncertainty: (1) online product descriptions (textual, visual, multimedia); (2) third-party product certifications (inspection, history report, warranty); (3) auction posted prices (reserve, starting, buy-it-now); and (4) intrinsic product characteristics (book value and usage). Finally, we propose that the effect of online product descriptions and intrinsic product characteristics on product uncertainty is moderated by seller uncertainty. The proposed model is supported by a unique dataset comprised of a combination of primary (survey) data drawn from 331 buyers who bid upon a used car on eBay Motors, matched with secondary transaction data from the corresponding online auctions. The results distinguish between product and seller uncertainty, show the stronger role of product uncertainty on price premiums and transaction activity compared to seller uncertainty, empirically identify the most influential product information signals, and support the mediating role of product uncertainty. This paper contributes to and has implications for better understanding the nature and role of product uncertainty, identifying mechanisms for mitigating product uncertainty, and demonstrating complementarities between product and seller information signals. The model's generalizability and implications are discussed.

Is Overbidding in Online Auctions the Result of a Pseudo-Endowment Effect?

Actual possession of an item has been shown to increase an owner's valuation of it, a phenomenon termed the endowment effect (Thaler, 1980). We hypothesize that temporarily being the high bidder during an auction induces a pseudo-endowment effect. This effect may foster attachment to an item during the auction and thus promote overbidding. We examine this effect in two studies. In the first study, we examined bids from 1088 eBay Motors' passenger vehicle auctions to test for evidence of the pseudo-endowment effect and for evidence that this effect is reduced by market experience. Pseudo-endowment is measured using two proxies: the amount of time a person has participated in an individual eBay Motors' passenger vehicle auction and the aggregated duration that a bidder is listed as the high bidder for that auction. Both proxies are found to be positively and significantly associated with the probability that the bidder will rebid in a single second-price auction. We further find that the pseudo-endowment effect is more pronounced than the effects of auction fever. We also find that these non-normative effects are reduced by market experience. The second study is a variation of the classic mug experiment in which we control for opponent effects. Consistent with findings of the field study, we found that the duration of examining an item positively influenced participants' bids for the item.