College Park, Md. - January 28, 2008 - New research from the University of Maryland's Robert H. Smith School of Business finds that consumers save billions of dollars annually by buying goods through the online auction site eBay more than $7 billion in 2003, according to researchers. The study marks the first time this benefit to the overall economy has been quantified. The flip side of these benefits, however, is that sellers are leaving billions on the table that they could have charged buyers by setting higher prices.
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Smith School researchers Wolfgang Jank and Galit Shmueli, both associate professors of decision and information technologies, worked with Ravi Bapna, associate professor at the Indian School of Business, to examine consumer purchase data from more than 4,500 eBay auctions in 2003. They were able to measure the difference between what people were willing to pay and what they actually paid.
The group used data gathered from a Web venture Bapna was running at the time, Cniper.com, which automatically bids on auctions in the final moments to help users win desired items at the lowest possible price. The researchers used the difference in the winning price of a sniper-bid eBay auction and the absolute maximum amount the Cniper.com user was prepared to pay to calculate the consumer surplus generated on average, at least $4 per auction. The findings are to be published in an article, Consumer Surplus in Online Auctions,(PDF) in a forthcoming issue of Information Systems Researchjournal.
This is the first time consumer surplus has been quantified in online auctions, said Shmueli. You just cant quantify this for traditional retailers a store clerk would never get an accurate answer by asking a customer, how much were you really willing to pay for this item? We just pay the prices the retailers demand. But on an auction site like eBay, consumers can dictate how much theyre willing to pay.
The billions of dollars in savings that consumers realize by purchasing goods on eBay explain, in part, the popularity of the Web company and similar auction sites, and also help quantify the value of electronic markets to consumers.
But whats good for buyers is a different picture for sellers quantifying the consumer surplus shows that in 2003, sellers left more than $7 billion on the table in auctions that closed at lower prices than consumers were willing to pay. And the consumer surplus continues to rise as eBays user base grows.
We could see eBay increase fees or even set a new bid increment policy to try to level the playing field, said Jank. But eBay lives from both sides and this significant consumer surplus explains why the site is so popular.
About the University of Maryland' Robert H. Smith School of Business
The Robert H. Smith School of Business is an internationally recognized leader in management education and research. One of 14 colleges and schools at the University of Maryland, College Park, the Smith School offers undergraduate, full-time and part-time MBA, executive MBA, executive MS, PhD and executive education programs, as well as outreach services to the corporate community. The school offers its degree, custom and certification programs in learning locations on three continents North America, Europe and Asia.