Plus shipping and handling: revenue (non)equivalence in field experiments on eBay
From the Briefcase: Research produced by America's Best Business Schools
Some findings
Their $4 auctions with a low opening bid of one penny (and high shipping charge of $3.99) attracted more bidders, earlier bidding, and higher revenue for both CDs and Xbox games. The jump in revenue was most dramatic with CDs, which averaged 21 percent higher final sales prices when the opening bid was a penny, compared with when it was $3.99. In $8 auctions, video games scored 11 percent higher average final sales prices when the opening bid was low at $2 (and shipping was $6), compared with when the initial pricing was reversed. But in $8 CD auctions, a lower opening bid and higher shipping fee did not lead to a higher final sale. In fact, the professors were unable to sell five of 20 CDs – Britney Spears, R.E.M., and Nirvana—when the total starting price was $8. The professors noted that a shipping charge of $6 is uncommon on music CDS but not Xbox games. And $8 represents more than 50 percent of the retail price of CDs but less than 27 percent of the retail price of Xbox games.
Additional research
The eBay study is just the latest piece of research on Internet pricing from Morgan, who has been investigating the subject since the late 1990s. Working with professors from Bentley College and Indiana University's Kelley School of Business, Morgan helped build what is probably today's most comprehensive database of retail prices on the Internet. They continue to track Internet pricing on a weekly basis on their website, www.nash-equilibrium.com, named for John Forbes Nash Jr., the Nobel laureate in economics and inspiration for Hollywood's A Beautiful Mind.
Using that database, the trio found that pricing on the Internet varies dramatically, contrary to predictions that the vast wealth of price information online would eat away at profit margins and result in one low price for consumers.
"It suggests E-retailers have to evolve their pricing tactics in a way that differs from their offline counterparts," Morgan says. "The only survivable pricing strategy online is a strategy of unpredictability."
More recently, Morgan and Jennifer Brown, a graduate student at the UC–Berkeley Department of Agricultural & Resource Economics, compared auctions on eBay and rival Yahoo!. After auctioning off identical Morgan silver dollars on both sites, they found that eBay auctions averaged almost 60 percent more bidders than Yahoo! and generated 30 percent higher sales prices on identical items.
Those findings could have antitrust implications in the U.S. online auction market because they suggest Yahoo! is not a formidable competitor to eBay, Morgan says.
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