Market structure and quality uncertainty: a theoretical framework for online auction research
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GENERAL RESEARCH
Market structure and quality uncertainty: a theoretical framework for online auction research Jianwei Hou & Jeffrey Blodgett
Received: 20 January 2009 / Accepted: 22 October 2009 / Published online: 6 February 2010 # Institute of Information Management, University of St. Gallen 2010
Abstract Given large numbers of buyers and sellers, with access to a wide variety of information, economic theory suggests that online auction markets should provide an efficient mechanism for establishing equilibrium prices. Previous research on online auction prices, however, is far from conclusive, having produced mixed findings. The seemingly inconsistent and sometimes contradictory results make it very difficult to integrate empirical findings into a coherent body of knowledge. The purpose of this paper is to present a framework that can reconcile previous findings and provide direction for future research. Accordingly, we propose a simple theoretical framework with two dimensions—market structure (thick vs. thin) and quality uncertainty (high vs. low). By examining the literature in the context of market structure and quality uncertainty we find that previous studies are not necessarily at odds, but that there is actually a fairly consistent pattern of results. Keywords Online auctions . Auction price . Quality uncertainty . Market structure . Thick market . Thin market
Responsible editor: Hans-Dieter Zimmermann J. Hou (*) Department of Marketing and International Business, Minnesota State University, Mankato, 150 Morris Hall, Mankato, MN 56001, USA e-mail: [email protected] J. Blodgett Department of Marketing, Transportation & Supply Chain, North Carolina A&T State University, Greensboro, NC 27411, USA e-mail: [email protected]
JEL Classification D44
Introduction The past decade has witnessed a tremendous growth in online auctions. According to Jupiter Research (www.jupiterresearch. com), online consumer auction sales increased from $8.4 billion in 2001 to $30 billion in 2007, representing a 24% annual growth rate. By 2010, online consumer auction sales will reach $42 billion, accounting for 1.5% of total retail sales. Today, there are numerous auction sites providing a forum in which sellers and buyers can come together. For example, eBay, the largest online auction site, had 667 million new item listings during the second quarter of 2008, and approximately 84.5 million eBay users bid, bought, or listed an item during that quarter (www.ebay.com). In response to the tremendous growth of online auctions a large body of academic research has emerged. Online auctions are beneficial for both sellers and buyers. For sellers, online auctions provide access to a large number of potential buyers, and the low transaction costs allow sellers to list items that otherwise might feasibly be sold only in a local market (e.g., a yard sale or a flea market), discarded, or stored away. For buyers, online auctions provide access to a wide variety of items—some common and ordinary, some rare and unique—without investing cons
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