Price Determinants in Online Auctions: A Comparative Study of Ebay China and Us

Article excerpt

ABSTRACT

This study applies online auction theories developed in the US to a different national and cultural context (i.e., China). After summarizing and comparing factors that drive price across online auctions in China and the US, this study is able to identify similarities and differences. Specifically, the starting bid and seller reputation have been shown to have similar effects on price, though the magnitude of the effect varies among cultures. The number of product pictures has a significantly positive effect on price only for eBay China auctions, while the opposite is true for bidder expertise and auctions ending on weekends. These differences are further explained from cultural and institutional perspectives.

Keywords: online auction, auction price, eBay, China, price determinants.

1. Introduction

The worldwide growth of online auctions has been explosive in the past decade. According to Forrester Research [www.forrester.com], online auction sales in the US have increased from $8.4 billion in 2001 to $28.2 billion in 2004, representing a 33% annual growth rate. By 2007, online auctions in the US are estimated to generate $54.3 billion in sales. Though the online auction market size in China is rather small as compared to that in the US, it has grown at a surprisingly high rate in recent years. According to IResearch, a Shanghai-based Internet marketresearch firm, online auction sales in China have increased from $51 million in 2001 to $434 million in 2004, representing a 104% annual growth rate. By 2007, the sales are expected to reach $2.68 billion.

As a result of this tremendous growth, it is becoming increasingly important to understand how sellers and bidders behave in online auctions. For sellers, in order to maximize their revenues, they must make decisions about the auction design or selling strategies (e.g., the amount of the starting bid, the number of product pictures, etc.). For bidders, in order to get a good deal, they must make decisions about which auction to enter and how much they wish to pay for an auction item. Therefore, developing an understanding of how the auction price is determined is beneficial for both sellers and bidders. This type of knowledge certainly influences how sellers design their auctions and how potential bidders make their entry and bidding decisions.

While a growing body of research exploring the price determinants in online auctions is beginning to emerge in the US [Ariely and Simonson 2003; Bajari and Hortacsu 2003; Brint 2003; Gilkeson and Reynolds 2003; Kamins et al. 2004; Kauffman and Wood 2006; Park and Bradlow 2005], it is not clear how well these studies and associated theories translate to other cultural contexts. As indicated by Farley and Lehmann [1994], cross-cultural differences often affect the ability to generalize theories developed in the US, and thereby their external validity must be assessed before they can be universally accepted.

This study makes an important first step in applying online auction theories developed in the US to a different cultural context (i.e., China). The objective is to further our understanding of price determinants in online auctions among cultures. The approach is to compare and summarize factors that may influence the online auction price between the China and US markets. Specifically, this study examines how price determinants differ across eBay China and US and explains why these differences may exist.

The remainder of this article is structured as follows. First, a literature review is provided to discuss the factors that may influence the auction price, and research hypotheses are then developed. Second, data collection and description are presented. Third, hypotheses are empirically tested and a discussion of the results is also provided. Finally, the study closes with conclusions and implications for future research.

2. Theoretical Development and Research Hypotheses

This section will review a number of factors that may have an effect on the auction price, including the starting bid, the reserve price, the Buy-It-Now option, the product picture, the auction length, the auction closing day, bidder expertise, and seller reputation. …