42 Sena and Braun rate their partner by leaving either a positive, negative, or neutral rating, along with a comment of up to 80 characters in length (see Figure 1) As a member accumulates feedback, a user rating is calculated with each positive comment earning +1 points, each neutral comment earns +0 points, and each negative comment earns –1 points (eBay Feedback Forum, 2004) This rating and the percentage of feedback rated positively are prominently displayed next to the user’s ID (see Figure 2) Though not required, participation levels at eBay are remarkably high as buyers leave feedback on sellers 52.1% of the time and sellers on buyers 60.6% of the time (Dellarocas, 2003) Once left, a comment cannot be edited and becomes a permanent part of the feedback profile Thus, Figure eBay feedback form Figure eBay feedback rating Copyright © 2006, Idea Group Inc Copying or distributing in print or electronic forms without written permission of Idea Group Inc is prohibited An Examination of Consumer Behavior on eBay Motors 43 a negative or even a neutral rating can be detrimental to the user’s ability to sell in the eBay community in the future eBay Motors auction listings contain fundamental bidding data such as the winning bid, ending date and time, number of bids, and so forth The listings also allow sellers to provide a formatted Web page that describes the vehicle and displays multiple pictures that can be enlarged to show details The description and pictures of the vehicle are very important in overcoming the limitations of an online automobile marketplace A previous study (Sena, Heath, & Webb, 2004) suggests that the quality of an auction’s description might impact the final winning price of the auction It is important to note that, like traditional eBay auctions, eBay Motors utilizes proxy bidding (users specify their highest price and the system automatically increases the winning bid when necessary), which means that the final bid price is typically determined by the second highest bidder For example, if the winning bidder listed $10,000 as the highest amount willing to pay and (ultimately) the second-highest bidder placed a bid of, say, $9,500, then the winning bid price would be $9,600 (the second place amount plus an increment of $100) In other auction listings, the winning price could be determined by a “buy it now” price set by the seller which, if selected by a bidder, ends the auction immediately Research on Internet Auctions With the success of eBay, a number of studies have examined various measures of reputation on the likelihood of successful sales occurring, and in particular, on the final prices for goods sold at online auctions (Sena et al., 2004) Table summarizes the results of various studies that have examined the impact of feedback on ratings Such studies have yielded conflicting results as to the relationship between reputation and winning bid prices on eBay For details on prior research, see Dellarocas (2003) The Internet Auto Market eBay Motors (2004), a division of the online auction site, introduced used car buyers and sellers to their bidding process with a category dedicated to cars in 1999 eBay Motors was started as a separate division in April 2000, with sales of $1.5 billion in cars and parts in its first full year (Wingfield & Lundegaard, 2003) In 2002, it sold 300,000 vehicles, while attracting more than 6.1 million unique visitors in the month of February Total sales for 2002 represented 25% of eBay’s gross merchandise (Cuneo, 2003a) Sales volume increased to 500,000 Copyright © 2006, Idea Group Inc Copying or distributing in print or electronic forms without written permission of Idea Group Inc is prohibited 44 Sena and Braun Table Prior research on impact of eBay feedback on winning bid price (Adapted from Sena et al., 2004) Increases No Effect Negative Feedback Effect on Winning Bid Price No Effect Reduces Ba & Pavlou (2002) – music, software, electronics Bajari & Hortacsu (2003) – coins Resnick & Zeckhauser (2002) – MP3 players, Beanie Babies Houser & Wooders (2000) – computer chips Kalyanam & McIntyre (2001) – PDAs Lucking-Reiley, Bryan, Prasa, & Reeves (2000) – coins Melnik & Alm (2002) – gold coins Standifird (2001) – PDAs Not Tested Livingston (2002) – golf clubs Reduces Kauffman & Wood (2000) – coins Not Tested Positive Feedback Effect on Winning Bid Price Increases Net score increases price Eaton (2002) – electric guitars Lee, Im, & Lee (2000) – computer equipment (though only for used) Cabral & Hortacsu (2003) – coins, Beanie Babies, and laptop computers Dewan & Hsu (2001) – stamps McDonald & Slawson (2002) – dolls Sena, Heath, & Webb (2004) – designer watches and DVDs per month by 2003 and was expected to reach million per month by 2004 Revenues have been forecast to reach $3 billion for 2005, potentially qualifying eBay Motors for Fortune 500 status (Verma, 2003) While initial listings concentrated more on exotic and high-end vehicles, according to Simon Rothman, originator of eBay Motors and vice president of eBay’s U.S operations, cars such as the Ford Taurus and Honda Accord top the sales list (Cuneo, 2003b) While eBay Motors has emerged as the leader in Internet car sales, AutoByTel (2004) introduced online car buying to the general public in 1995 While initially focusing on new car sales along with CarsDirect (2004), they have both more recently entered the used car market AutoTrader (2004) began exclusively as an online used car dealer as AutoConnect in 1998 It now lists more than million used vehicles from private owners and dealers Cars.com (2004) also launched in 1998 by pulling used “vehicle listings from thousands of dealer inventories and classified ads nationwide.” Selling cars on the Internet also has its drawbacks Online sellers have to contend with frugal buyers searching for a bargain, possibly leading to a lower sale price While this lower revenue may be offset by reduced costs for dealers, along with Copyright © 2006, Idea Group Inc Copying or distributing in print or electronic forms without written permission of Idea Group Inc is prohibited An Examination of Consumer Behavior on eBay Motors 45 quicker sales for both dealers and private owners, according to estimates by the Goldman Sachs Group, only “about 30% of auto listings on eBay close with a winning bid” (Wingfield & Lundegaard, 2003) Chip Perry, president of AutoTrader, notes that his company research shows that online used car sales “are inherently limited by the fact that consumers are reluctant to make purchases sight unseen” (Cuneo, 2003a) His site has recently entered the auction car sales market as direct competitor to eBay, and offers a “conditional bidding” process where the winning bidder is not obligated to buy until the car’s condition has been verified by an inspector eBay also makes a special effort to “build trust, confidence and support to both buyers and sellers,” by insisting on ethical behavior Feedback about both the seller and buyer are readily available, and a strict set of “rules” govern transactions For instance, “eBay will throw out a seller who regularly receives negative feedback” (Piszczalski, 2003) Most vehicles on eBay come with protections such as purchase insurance at no extra cost Cars that are never delivered or misrepresented are insured for up to $20,000 These extra efforts by online marketers seem to have had an influence on the car-buying public While many shoppers still choose to buy locally, three-quarters of all car sales on eBay involve out-ofstate transactions (Wingfield & Lundegaard, 2003) For the buyer, online vehicle sales seems to be a shopper’s mecca At any given moment, a shopper may find 20,000 cars listed just on eBay Motors (Fahey, 2003) Hundreds of choices for a given car model, such as Honda Accord, may be available at any given time With multiple search options, buyers have the ultimate flexibility in comparison shopping They also have a wealth of information about the vehicle immediately available, and may contact the seller for further details for clarification Still, as with used car buying in general, some shoppers are happy and some are not Reports of misrepresentation and fraud occur for online sales as well as for the stereotypical used car lot Some dealers who have tried online sales have also been disappointed and Internet car sales have not yet had a serious impact on traditional sales Although a few dealers are changing their way of business, moving from the traditional car lot to exclusive online sales, only 0.6% of the 43 million used cars sold annually are sold on eBay Motors (Wingfield & Lundegaard, 2003) Research Questions and Methodology From February through August of 2004, 126 observations were collected from completed eBay Motors auctions Our data include only auctions offering Honda Copyright © 2006, Idea Group Inc Copying or distributing in print or electronic forms without written permission of Idea Group Inc is prohibited 46 Sena and Braun Accords made between 1992 and 2003 with winning bid prices between $4,000 and $20,000 Data were only collected on completed auctions in which the “reserve price” (minimum seller is willing to accept) was met and in which the automobile is described as being in good condition Autos that had been damaged, salvaged, or customized were not considered Using the data (model type, year, mileage, options, etc.) from each auction listing, “blue book” values were collected for each vehicle using the Kelley Blue Book (2004) Web site (kbb.com) If the necessary data were not included in the listing (model type, options, etc.), the observation was not included in the data set (see Figure for an example of a Kelley Blue Book retail price listing) Since our study involved vehicles with varying model types (e.g., DX, LX, EX), mileage, and options, the price ratio is the primary dependent variable of interest This ratio serves as percentage of retail value that an auction listing achieved For example, if an auction’s winning bid price was $7,000 and the automobile’s retail value (as determined by using the Kelley Blue Book price) was $10,000, the price ratio would be 70% Based on the variables shown in Table 2, some interesting research questions emerge Many of these research questions help to explore the role of risk in eBay Motors auctions In some eBay markets, more expensive items could sell for a lower percentage of retail value For example, Sena et al (2004) found that the retail value of DVDs was negatively correlated with the price ratio (percent of retail value) However, in the case of automobiles, given a fixed model type (Honda Accords), more expensive (or newer) models may be considered less risky and thus may realize a higher price ratio Table Description of variables Winning Bid Price – Includes only completed auctions where bid price exceeds “reserve price” (the minimum price specified by the seller) Blue Book Value – Retail value of automobile as listed by Kelley Blue Book (kbb.com) Price Ratio – The ratio of (Winning Bid Price/Kelley Blue Book Value) Year – Model year of the automobile Seller’s Feedback Rating – Number of completed auctions in which seller was rated as positive (serves as an estimate of seller experience) Seller’s Percent Positive – Number of positive feedback ratings divided by the total number of feedback ratings (positive, negative, and neutral) Buyer’s Feedback Rating - Number of completed auctions in which buyer was rated as positive (serves as an estimate of buyer experience) Number of Pictures – Number of unique images that users can access within the auction listing (commonly presented as “thumbnail” photos that can be enlarged to show detail) Dealer – Whether the listing indicates that the seller is an automobile dealership or an individual seller Bids – Number of bids placed during the auction (a “1” bid auction may indicate a “buy it now” auction; eBay uses “proxy bidding” in which bids are automatically submitted by the system when a bid exceeds the current price but is below a prior bidder’s maximum price) Copyright © 2006, Idea Group Inc Copying or distributing in print or electronic forms without written permission of Idea Group Inc is prohibited An Examination of Consumer Behavior on eBay Motors 47 To examine these factors from different perspectives, we have focused on nine specific research questions as shown in Table Questions 1–3 focus on the relationship between price ratios and winning bid prices, retail values, and the age (model year) of the autos Research question focuses on the impact of automobile dealerships on bid prices Beyond the perception that dealers may be less likely to commit fraud (perhaps because users have a name, address, etc.), they may also have the ability to offer services, warranties, and so forth, that may entice buyers to offer higher bids Research question explores the relationship between the number of bids at an auction and the winning bid price while research question examines whether listings that include more pictures realize higher prices This research question builds on a finding from Sena et al (2004) that higher quality descriptions (for designer watches and DVDs) resulted in higher bid prices (see Figure for an example of a listing with 28 thumbnail photos) Prior research has indicated, with some exceptions, that seller feedback correlates positively with winning bid prices As described in Table 2, two seller reputation variables were collected from eBay listings: seller percent positive and seller feedback rating The feedback rating serves as a measure of the seller’s experience, as estimated by the seller’s number of previous feedback responses These variables are generally the only measures of seller reputation that eBay buyers observe as they are displayed on the main auction listing Research questions and examine whether seller feedback ratings have an impact on winning bid prices It is important to reiterate that our sample includes only completed auctions, excluding auctions where bid prices did not exceed the seller’s reserve value Thus, it is possible that seller feedback plays an important Table Research questions Research Question 1: Do autos with higher winning bid prices sell for a higher percentage of retail value? Research Question 2: Do more expensive autos (those with higher blue book values) sell for a higher percentage of retail value? Research Question 3: Do autos with more recent model years sell for a higher percentage of retail value? Research Question 4: Do autos listed by dealerships sell for a higher percentage of retail value (as compared with those listed by individual sellers)? Research Question 5a: Do auctions with more bids sell for a higher percentage of retail value? Research Question 5b: Do auctions with one bid (i.e., “buy it now” auctions) sell for a higher percentage of retail value? Research Question 6: Do auction listings that contain a greater number of pictures sell for a higher percentage of retail value? Research Question 7: Do autos listed by sellers with higher feedback scores (i.e., more experienced eBay users) sell for a higher percentage of retail value? Research Question 8: Do autos listed by sellers with higher percent positive feedback sell for a higher percentage of retail value? Research Question 9: Do autos purchased by winning buyers with higher feedback scores (i.e., more experienced eBay users) sell for a lower percentage of retail value? Copyright © 2006, Idea Group Inc Copying or distributing in print or electronic forms without written permission of Idea Group Inc is prohibited 48 Sena and Braun Figure Example of “thumbnail” photos in eBay Motors listing Figure Example of Kelley Blue Book listing Copyright © 2006, Idea Group Inc Copying or distributing in print or electronic forms without written permission of Idea Group Inc is prohibited An Examination of Consumer Behavior on eBay Motors 49 role beyond what our study captures For instance, the seller feedback (or lack thereof) may result in fewer or lower bids that fail to meet the seller’s minimum acceptable price Finally, research question examines the role of feedback ratings for the buyer rather than the seller The seller feedback is an estimate of buyer experience with eBay From our anecdotal observations, it appears that many buyers purchase multiple vehicles on eBay Motors, presumably with the intention of reselling This variable, if significant, would likely be negatively related to price ratio, as one would expect more experienced users to recognize better deals (and thus realize lower price ratios) Statistical Analyses and Findings Descriptive Statistics To begin our analysis, we examine the descriptive results of our data set As shown in Table 4, the mean winning bid price for the 126 automobiles in our sample was $8,765, while the mean retail value of these automobiles was $12,092, resulting in a mean price ratio of just over 72% The authors collected data for listings with model years ranging from 1992 to 2003 with a mean year of 1998.75 Compared with other eBay marketplaces, buyers and sellers seem to have fewer feedback ratings Buyers in our sample have an average of 17.83 feedback ratings while sellers have an average of 177.49 Like other eBay markets, feedback tends to be heavily positive with sellers in our sample having a mean positive feedback percentage of 97.43% It is important to note that eBay combines all feedback into one rating regardless of whether the user was a buyer or seller and whether the item was sold on eBay Motors or another eBay listing Thus, feedback scores and percent positive ratings can occasionally be misleading (e.g., a rating based on Beanie Baby purchases rather than auto sales) Given the limitations of using eBay Motors for such an important purchase, the auction listing plays an important role in marketing the auto and conveying the important information that potential buyers require Thus, it is not surprising that sellers provide numerous digital images in most listings In our sample, the mean number of pictures provided was 18.59 Automobiles offered by dealerships may be considered less risky by some eBay users In our sample, 71% of the sellers were deemed to be automobile dealerships based on the item description The number of bids on automobile auction may vary depending on the starting Copyright © 2006, Idea Group Inc Copying or distributing in print or electronic forms without written permission of Idea Group Inc is prohibited 50 Sena and Braun Table Descriptive statistics (n=126) Minimum Maximum Mean Std Dev Winning Bid Price $4,050 $18,900 $8,765.50 3421.31 Blue Book Value $5,775 $21,175 $12,091.83 3946.19 Price Ratio 48.2% 96.2% 72.1% 0.11 Year 1992 2003 1998.75 2.48 475 17.83 51.92 802.01 Variable Buyer’s Feedback Rating Seller’s Feedback Rating 8856 177.49 Seller’s Percent Positive 80% 100% 97.43% 4.00 75 18.59 11.36 Number of Pictures Dealer 1 0.71 0.46 Bids 72 19.84 15.25 Excludes six observations with zero feedback ratings Table Correlation between price and age of auto and price ratio Variable Correlation With Price Ratio Winning Bid Price 482*** Blue Book Value 120 Year 066 *** significant at p= 2001 (n=36) 76.3% Year < 2001 (n=90) 70.3%* *** significant at p=25 (n=21) 70.3% Buyer’s Feedback < 25 (n=105) 72.4% Table 12 Relationship between percent positive and price ratio: Limited to auctions listed by sellers with a minimum of 25 feedback ratings Variable Seller’s Percent Positive (n=74) Variable Correlation With Price Ratio 125 Mean Price Ratio Seller’s Percent Positive >= 98% (n=43) 74.7% Seller’s Percent Positive < 98% (n=31) 69.1%** *** significant at p