Tana and the Handbag: Extending the Model of Factors Influencing the Final Price in Online Auctions

Tana and the Handbag: Extending the Model of Factors Influencing the Final Price in Online Auctions

Val A. Hooper (Victoria University of Wellington, New Zealand), Sid L. Huff (Victoria University of Wellington, New Zealand) and Jon McDonald (Trade Me, New Zealand)
DOI: 10.4018/978-1-60960-132-4.ch017

Abstract

Research into the determinants of online auction prices has tended to group them into buyer factors, seller factors and site factors. A case is presented which recounts how a $30 handbag was sold for $ 22,750 in an online auction shortly after a national sport event. Analysis of the case indicates that, in addition to the three groups of factors already identified, other factors can exert a considerable influence on the final auction price. A model is proposed which depicts five groups of factors impacting the final price: buyer factors, seller factors, site factors which are expanded to include timing of the auction, and site brand strength; product factors which include product features, brand strength, and brand extension/association; and promotion, which includes media publicity. While not all factors will impact on every auction, due consideration should be accorded each of them by both buyers and sellers.
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Online Auctions

The rise of the Internet and e-commerce has seen the emergence of a number of new business models, and adaptations of others (Rappa, 2004). One important example of a successful adaptation is the online auction.

Most traditional auctions attracted attention from limited numbers, e.g., the very wealthy (Bazerman, 2001), or specific-interest groups such as used car salesmen, real estate developers, or fresh produce and livestock dealers. In contrast, online auctions have changed the profile of interested parties significantly (Hu & Elliott, 2010; Gilkeson & Reynolds, 2003).

Online auctions based on the Internet have resulted in lowered barriers to entry, improved flow of information, enhanced power of buyers, increased efficiencies, and intensified competition (Ibeh, Luo & Dinnie, 2005). Accessibility has also dramatically increased: the ubiquity of the Internet means that many more people have access to online auctions and to the information relating to any specific auction, than would be the case for traditional fixed-time-and-place auctions.

However, in many ways, online auctions follow the approaches of traditional auctions. Online auctions can be open or sealed bid, single or multiple item lots, a seller can set a reserve price or not, and either the first in descending order (Dutch auction) or the last bid in ascending order (English auction) can be the winning one. Bidding can open at zero with a hidden price reserve, or the seller can predetermine the opening bid price (Massad & Tucker, 2000).

Implicit in auctions is the element of risk. Hofacker (1999) noted five categories of risk associated with auctions: time between purchase and delivery, vendor trustworthiness, security, brand integrity, and privacy. All of these apply to online auctions as well as traditional auctions. However, despite the risks, online auctions have been found to exceed in-person auctions both with regard to opening bid prices and average final prices (Massad & Tucker, 2000).

In any auction, final prices paid for the goods being auctioned are the ultimate indication of success. Stern and Stafford (2006) identified three groups of factors which determine final prices in online auctions: buyer factors, seller factors, and site factors. Other auction research literature also supports these three groups. Each group of factors is examined below.

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