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The effect of competition on eBay

Author

Listed:
  • Newberry, Peter W.
Abstract
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.

Suggested Citation

  • Newberry, Peter W., 2015. "The effect of competition on eBay," International Journal of Industrial Organization, Elsevier, vol. 40(C), pages 107-118.
    • Handle: RePEc:eee:indorg:v:40:y:2015:i:c:p:107-118
    DOI: 10.1016/j.ijindorg.2015.03.007
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    References listed on IDEAS

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    1. David H. Reiley, 2005. "Experimental Evidence on the Endogenous Entry of Bidders in Internet Auctions," Springer Books, in: Amnon Rapoport & Rami Zwick (ed.), Experimental Business Research, chapter 0, pages 103-121, Springer.
    2. Katharina Sailer, 2006. "Searching the eBay Marketplace," CESifo Working Paper Series 1848, CESifo.
    3. Kevin Hasker & Robin Sickles, 2010. "eBay in the Economic Literature: Analysis of an Auction Marketplace," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 37(1), pages 3-42, August.
    4. Mireia Jofre-Bonet & Martin Pesendorfer, 2003. "Estimation of a Dynamic Auction Game," Econometrica, Econometric Society, vol. 71(5), pages 1443-1489, September.
    5. Peters, Michael & Severinov, Sergei, 2006. "Internet auctions with many traders," Journal of Economic Theory, Elsevier, vol. 130(1), pages 220-245, September.
    6. Patrick Bajari & Ali Hortaçsu, 2004. "Economic Insights from Internet Auctions," Journal of Economic Literature, American Economic Association, vol. 42(2), pages 457-486, June.
    7. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
    8. Alvin E. Roth & Axel Ockenfels, 2002. "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet," American Economic Review, American Economic Association, vol. 92(4), pages 1093-1103, September.
    9. Glenn Ellison & Drew Fudenberg & Markus Möbius, 2004. "Competing Auctions," Journal of the European Economic Association, MIT Press, vol. 2(1), pages 30-66, March.
    10. Bajari, Patrick & Hortacsu, Ali, 2003. "The Winner's Curse, Reserve Prices, and Endogenous Entry: Empirical Insights from eBay Auctions," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 329-355, Summer.
    11. Robert Zeithammer, 2007. "Research Note--Strategic Bid-Shading and Sequential Auctioning with Learning from Past Prices," Management Science, INFORMS, vol. 53(9), pages 1510-1519, September.
    12. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
    13. Christopher Adams & Laura Hosken & Peter Newberry, 2011. "Vettes and lemons on eBay," Quantitative Marketing and Economics (QME), Springer, vol. 9(2), pages 109-127, June.
    14. Matthew Shum, 2000. "Nonparametric Tests for Common Values," Econometric Society World Congress 2000 Contributed Papers 1598, Econometric Society.
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    Cited by:

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    2. Marleen Marra, 2024. "Estimating and Auction Platform Game with Two-Sided Entry," Working Papers hal-03393068, HAL.
    3. repec:hal:spmain:info:hdl:2441/5kht5rc22p99sq5tol4efe4ssb is not listed on IDEAS
    4. repec:hal:wpspec:info:hdl:2441/5kht5rc22p99sq5tol4efe4ssb is not listed on IDEAS
    5. Matthew Backus & Gregory Lewis, 2016. "Dynamic Demand Estimation in Auction Markets," NBER Working Papers 22375, National Bureau of Economic Research, Inc.
    6. Radoslav Delina & Renata Olejarova & Petr Doucek, 2023. "Effect of a new potential supplier on business to business negotiations performance: evidence-based analysis," Electronic Commerce Research, Springer, vol. 23(3), pages 1941-1970, September.
    7. Xiang Hui, 2020. "Facilitating Inclusive Global Trade: Evidence from a Field Experiment," Management Science, INFORMS, vol. 66(4), pages 1737-1755, April.
    8. repec:spo:wpmain:info:hdl:2441/5kht5rc22p99sq5tol4efe4ssb is not listed on IDEAS

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    More about this item

    Keywords

    Auctions; eBay; Simultaneous auctions; Auction choice; Endogenous entry;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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