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ADVERSE SELECTION IN ELECTRONIC MARKETS: EVIDENCE FROM ONLINE STAMP AUCTIONS
Author(s) -
Dewan Sanjeev,
Hsu Ver
Publication year - 2004
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/j.0022-1821.2004.00237.x
Subject(s) - common value auction , adverse selection , reputation , quality (philosophy) , value (mathematics) , selection (genetic algorithm) , business , microeconomics , electronic markets , economics , advertising , computer science , the internet , artificial intelligence , world wide web , social science , philosophy , epistemology , machine learning , sociology
We analyze adverse selection costs in online stamp auctions, based on a comparison of prices on eBay with those of matched stamps at a specialty stamps auction site in the U.S., Michael Rogers, Inc. (MR), which we know a priori has low quality uncertainty. We find that buyer prices are 10–15% lower on eBay as compared to MR, and the price difference, increases with the value of the stamps. Consistent with this adverse selection discount we find that the seller reputation mechanism on eBay has an economically modest, although statistically significant, effect on auction price and probability of sale.