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Study: eBay Saved Shoppers More Than $7 Billion

Based on the headline alone, you would think eBay paid for some sketchy company to do a study that makes them look like gods. However, this research is coming from the University of Maryland and it couldn’t be better news for both consumers and eBay.

Digital Journal — A study from the University of Maryland’s Robert H. Smith School of Business says eBay helps save consumers a lot of money. Not a surprise? Well, the numbers might be bigger than you imagined, as the research shows eBay saved consumers more than $7 billion in 2003.

The study sounds like something commissioned by eBay so the company could issue a press release to spread its feathers in the face of the competition.

But in fact, this university study is the first time the actual benefit of eBay has been quantified, researchers claim. The news is great for buyers and makes eBay look like the people’s place, but as the study notes, it points out there are sellers out there who are losing out on billions of dollars in revenue.

“This is the first time consumer surplus has been quantified in online auctions,” Shmueli said in a statement. “You just can’t quantify this for traditional retailers — a store clerk would never get an accurate answer by asking a customer, ‘how much were you really willing to pay for this item?’ We just pay the prices the retailers demand. But on an auction site like eBay, consumers can dictate how much they’re willing to pay.”

To collect data, researchers looked at more than 4,500 eBay auctions in 2003, measuring the difference between what people were willing to pay and what they actually paid. The research was compiled by Wolfgang Jank and Galit Shmueli (both associate professors of decision and information technologies at Smith School), as well as Ravi Bapna (associate professor at the Indian School of Business).

The data was collected through Cniper.com, an online service run by Bapna that bids on items at auction at the last moment so a buyer can get it for the lowest possible price. They then used the difference between this low-ball number and the maximum amount the Cniper.com user was ready to fork over to calculate the surplus. On average, researchers say it was about $4 per auction.

Researchers wanted to show why eBay was so popular using real numbers, and also quantify the value of electronic markets. The group also pointed out sellers could charge more for their items and not scare away buyers.

“We could see eBay increase fees or even set a new bid increment policy to try to level the playing field,” Jank said in a statement. “But eBay lives from both sides and this significant consumer surplus explains why the site is so popular.”

The study concludes, “eBay auctions are at the forefront of e-commerce, demonstrating how the Internet can remove spatial and temporal constraints to make economic exchange mechanisms, such as auctions, mainstream. In 2003, sellers through eBay sold $23.8 billion worth of merchandise.

The findings (opens in PDF) will be published in an upcoming issue of Information Systems Research journal.

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