When more bidders count less: item characteristics and sellers revenue in online auctions

Abstract

Recently, practicals such as computers and clothes account for a substantial amount of the total volume in online auction marketplaces. However, as bidders for practicals may easily find the same goods elsewhere, it is likely that they bid less aggressively than bidders for rare items such as collectibles. We present a model that explicitly incorporates the probability of finding identical goods elsewhere. Using the model and relevant actual auction data, we show that when this probability is close either to zero or to one, an increasing number of bidders does not improve revenue as much as when it is in the middle range. We also comment on strategic implications for online auction sellers and for competing online auction marketplaces.