Academic journal article Journal of the Association for Information Systems

An Economic Analysis of Consumer Learning on Entertainment Shopping Websites

Academic journal article Journal of the Association for Information Systems

An Economic Analysis of Consumer Learning on Entertainment Shopping Websites

Article excerpt

(ProQuest: ... denotes formulae omitted.)

1 Introduction

The proliferation of e-commerce has inspired the development of many new forms of online retail mechanisms, among which "entertainment shopping" represents one recent innovation. As the name implies, entertainment shopping combines "entertainment" with "online shopping." It sells products using a type of pay-to-bid auction (also known as bidding-fee auction or penny auction) to engage players in online shopping tasks. The auction design leverages people's natural desires for socializing, competition, achievement, status, and self-expression. It provides an interactive shopping environment to effectively integrate into retail shopping consumers' utilitarian and hedonic motivations.

According to Alexa's web traffic rankings, pennyauctionwatch.com currently tracks the top 50 active entertainment shopping websites worldwide. DealDash.com, the US-based e-commerce company that operates the longest-running bidding-fee auction website, allows bidders to bid on brand new products, including electronics, household items, gift cards, and more. Beezid.com is a Canada-based entertainment auction site that features auctions for designer handbags, Apple products, and other desirable consumer products and electronics. MadBid.com is a UK-based e-commerce and online auction site. This fast-growing shopping site has attracted more than one million users from across Europe and around the world.

The pay-to-bid auction is different from other traditional online auction models such as eBay auctions. As the US entertainment shopping site QuiBids.com claims, the new auction format is "a unique, exciting way to rejuvenate a century-old traditional auction in the digital era." A typical auction on entertainment shopping websites works as follows. Every auction starts at $0.00, and each bid normally costs the bidder $0.50-$1.00 and raises the auction price by only $0.01, thus the name "penny auction." The auction adopts a soft ending rule. Every bid restarts the auction countdown clock from a maximum of 10-20 seconds (the timing is not uniform from auction to auction).1 If no new bids are placed before the clock runs out, the last bidder wins the auction. The winner has the right to buy the item for the final price-typically 60-90% off the retail price. Further details about the auction design and comparison across different websites are provided in Appendix B.

Although the auction design elements, such as the cost of bidding, the incremental price increase, and the countdown clock time, can vary from one website to another, all websites share a common feature-they collect revenue from the bidding fees paid by all participants. The auction turns shopping into a competitive bidding game, so that the business model combines the features of both auctions and entertainment. The winning bidders obtain the merchandise at huge savings, and all losing bidders experience the excitement of potential "winning," which they deem worthy of the bidding fees they pay in auctions.

However, because most consumers pay the rather large bidding fee and still lose the auction, some analysts have criticized this model as a type of gambling, similar to lotteries (Platt, Price, & Tappen, 2013). Also, Wang & Xu (2016) find evidence that the majority of the participants quickly quit using the entertainment shopping websites after losing money, suggesting significant consumer churn issues. Decreasing consumer confidence has curtailed the overall growth of the industry, casting doubts as to whether the pay-to-bid auction-based entertainment shopping represents a sustainable business model. In fact, many of the early movers in this space, such as Swoopo.com and BigDeal.com, failed after a short period of operation.

Motivated by this paradox that a seemingly attractive business model cannot profit in a long run because of the unusual consumer churns, we develop a model to analyze entertainment shopping from the perspective of participating consumers. …

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