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An Ebay Sellers Dilemma Shipping To Bundle Or Partition
Published in AFBE Journal [Asian Forum on Business Education] Vol 8, No. 1, 2015.
Date : 13/04/2018
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Uploaded by : Peter
Uploaded on : 13/04/2018
Subject : Business Studies
ABSTRACT A fully rational bidder on eBay
will base their purchase decision on the total cost incurred to obtain the
item. Therefore, it will be irrelevant whether the seller bundles the shipping
cost with the price for the actual item or partitions the item s price and the
shipping cost. The paper used a field study to test this hypothesis by offering
identical cell phone power banks for auction, holding seller determined
variables constant, except for variable shipping cost (free or $1.99) nd the
day the auction ended. The results did not support the rational bidder hypothesis
items using partitioned pricing and $1.99 shipping cost)(actual price shipping
cost) achieved higher final revenue than items offering bundled pricing (actual
price and $1.99 shipping cost) achieved higher final revenue than items
offering bundled pricing (price including free shipping). The study also did
not find that , contrary to popular belief, ending the auction on the weekend
will result in a higher final sale price. Keywords: Online Auctions, eBay, Partitioned
Pricing, e-commerceIntroductionThe
most successful online auction site to date is eBay. The eBay marketplace is
very competitive because there are often many sellers offering the same or
similar items for sale, therefore sellers need to determine the most effective
and efficient selling strategies. eBay offers sellers an auction facility or a
fixed price Buy it Now option, this study focuses on eBay s auction
facility. A seller faces numerous
decisions regarding an auction strategy, these include the auction opening bid
price, auction length (3, 5, 7, 10 days), using a reserve price, item
descri ption (written, photos, video), day of the week to end the auction and
the shipping method to offer (free shipping or buyer pays).
It is common for eBay sellers to separate the price a buyer pays for an item into two sections, firstly the price for the actual item and the other price for shipping and handling, referred to a price partitioning. Hossain Morgan (2006) discuss the concept of mental accounting (Kahneman Tversky, 1984 Thaler, 1985) where a buyer focuses on the actual purchase price but fails to adequately add on the related shipping cost. Therefore some bidders will calculate the shipping fee fully or at least in part, while others may totally ignore this added cost (Hou Blodgett, 2012). An issue that this study shines a light on is eBay s campaign encouraging sellers to offer free shipping, for example the following information is available on the eBay website. If you offer free shipping in your listing and we can confirm the buyer didn`t pay for shipping you will automatically receive a 5-star rating on your shipping and handling charges detailed seller rating. (eBay, 2013) Attract more buyers and get higher placement in search results by offering free shipping. (eBay, 2013) Therefore, sellers that do not offer free shipping risk having their item being placed lower in the search results which can be a telling disadvantage in a competitive homogeneous category. Of course shipping is not free, therefore if the buyer does not pay, the seller must pay the cost for postage. Also image theory (Beach, 1993) suggests that individuals often create decision rules when they have numerous alternatives from which to choose, the alternatives that do not match these rules are rejected. eBay proposes that items offering free shipping attract a greater number of buyers, and suggests that many buyers may have a decision rule that requires only bidding on items that offer free shipping. In fact, eBay has a filter available that results in only auctions offering free shipping being displayed for any particular search query. Results from previous research support the proposition that a higher number of bids should positively affect the winning price of an auction (Hansen, 1985 Vincent, 1995 Bajari Hortacsu, 2003 Reynolds, Gilkeson Niedrich, 2009). The format of this paper is as follows. First, the hypotheses and support from the literature. Secondly, the data collection process is described and summary statistics for the data collected are provided. Next, a descri ption of the empirical results for the study are described. Finally, a discussion of the results, their limitations and the implications for future research.Literature ReviewEarlier research has explored a range of topics related to price partitioning and online auctions. Morwitz, Greenleaf Johnson (1998) allocated names to each price partition, the base price and the surcharge in relation to eBay auctions, the price of the item being auctioned is the base price and the shipping cost is the surcharge ( shipping cost is used to represent the cost of shipping and handling). Morwitz et al. (1998) presupposed that firms implemented a price partitioning strategy because it would increase consumer demand and then argued that if consumers calculate the base price and the surcharge with the same accuracy as they use when considering the bundled price, the partitioned price should not increase demand. The current study uses the number of bids as a proxy for demand . Morwitzet al. (1998) proposed that surcharges had less influence on buyers than the base price because buyers either fail to process the surcharge or focus on the base price and adjust insufficiently for the surcharge. Therefore, sellers using a partitioning price strategy may receive greater profits when buyers disregard the surcharge. Xia Monroe (2004) asked participants to consider a desktop computer purchase where shipping and handling were either included or partitioned from the base price. Despite the fact that the total price was also presented in the price partitioned condition, purchase intentions were higher when the price was partitioned than when it was combined. The prediction that price partitioning can increase purchase intentions seems to challenge some findings from prospect theory (Kahneman Tversky 1979) which propose that people prefer to integrate losses, and therefore would consider a lower total cost from bundled pricing than from price partitioning. Choosing which day of the week to finish an auction is another strategy component for the seller to consider, however there is a dearth of literature available. Studies have found that auctions ending during the weekend result in higher final prices than auctions that ended on weekdays (weekend effect) and suggest that people are willing to bid higher for the same item when they have more time to consider the purchase (Wood Kauffman, 2001 Melnick & Alm, 2002 Lucking-Reilly, Bryan, Prasad, Reeves, 2007), however, Schamel (2004) could not support a weekend effect. This study is important because it holds values for numerous elements regarding a seller s auction strategy constant, and thus allows focus on investigating the optimal shipping method and day to end an auction. Hou Blodgett (2012) noted that keeping background factors like the starting bid and book value constant was a key to isolating the effect of shipping fees on consumers online bidding decisions. An important factor in this study is that the seller offered shipping without distinction between local and international destinations and this factor has not been investigated previously. All items were listed on EBay s U.S site but available on all eBay sites, the items were listed in US dollars and dispatched from Hong Kong.HYPOTHESES DEVELOPMENTPartitioned pricing refers to the price of a single product in which the surcharge represents an additional amount intrinsic to the overall purchase cost, like shipping and handling fees (Burman Biswas, 2007).The notion of revenue equivalence between different eBay listings for an identical product is quite simple. If, in two standard English auctions, the shipping costs serve as the only transaction cost paid by the bidder, then the bidder uses the total cost of the item (price plus shipping) in the decision making process and selects the item that has the lowest total cost, regardless of how that cost is structured between the price and shipping charge. Therefore: Item A1 [Free shipping] Final bid + Shipping ($0.00) = R1Item A2 [Buyer pays shipping] Final bid + Shipping ($1.99) = R1Where R1= Seller s final aggregate sale revenue H0. An item offering Free Shipping (bundled price) will achieve the same final aggregate sale revenue (R1 ) as an identical item offering shipping at a fixed, specified cost (partitioned price). H1. An item offering Free Shipping (bundled price) will achieve a higher final aggregate sale revenue (R1 ) as an identical item offering shipping at a fixed, specified cost (partitioned price).Impact
of the number of bids on final sale price
Standard auction theory proposes
that a greater number of bidders will positively impact the final sale price
(Hansen, 1985 Vincent, 1995). This supports EBay s statement that offering
free shipping will result in more bids. Willcox (2000) argues that this
positive association results from there being more information available for
each bidder. Auction fever suggests that even rational bidders with access to
perfect information can be affected by profound emotion (Ku, Malhotra Murnighan,
2005). H2a. An item offering Free Shipping (bundled price) will
receive a greater number of bids (demand) than an identical item offering
shipping at a fixed, specified cost (partitioned price).H2b. An item with a greater number of bids (demand) will achieve
higher final aggregate sale revenue for an identical item Weekend effect lt;/h2>Much
of the advice found on EBay seller forums suggests that sellers should end
their auction on the weekend, because it will attract more bidders as people
have more leisure time to participate in online auctions on weekends. Wan and
Teo (2001) suggest that people who are interested in bidding on eBay can do so
with ease because bids can be submitted anytime anywhere. Earlier studies have
found the weekend effects on auction price were not significant
(Lucking-Reilly, 2000 Lucking-Reilly et al. 2007 Wan Teo, 2001
Melnik Alm, 2002). Schamel (2004) could not support a weekend effect,
finding that auctions ending on Mondays and Saturdays resulted in final selling
prices 6% higher (at 1% significance) relative to the Sunday base, while
Tuesdays and Wednesdays showed no significant difference.H3. Auctions ending on the weekend (Saturday, Sunday) will
achieve higher final aggregate sale revenue than auctions ending on weekdaysMETHODOLOGYSeller Controlled Variables lt;/span>The primary interest of this study
is learning the validity of suggestions and policy found on the eBay website
regarding the benefits to sellers of offering free shipping as compared to
buyers paying a shipping fee (policy) and the weekend effect (suggestion). To
investigate these issues dummy variables are allocated free shipping = 0 and
$1.99 shipping fee = 1, while auctions ending on a weekend = 1 and week days =
0. Any seller controlled
variable that could have an effect on the dependent variable (final selling
revenue), other than the independent variable (shipping method) has been
controlled to keep them from affecting the dependent variable. a. Identical item = 2600mAh POWER BANK external portable USB battery
charger for mobile phones b. Opening bid = $0.01c.
Descri ption = identical written descri ption and photos (see
Appendix A)d.
Worldwide shipping = Standard international maile.
Auction duration = 5 daysNote:i. This seller offered at
least 4 items for auction every day of the study period.ii. The ending time for each auction
in this study was between 02:56:19 and 03:05:36 PDT
[a gap of less than 10 minutes] therefore potential bidders had easy
opportunities for comparison.iii. Note: $1.99 shipping fee is 35.86% of the average final sale
revenue for free shippingDATA
COLLECTION Data were collected directly from www.eBay.com
on a daily basis, during a five-week period in June and July 2014. Auction data
for this study were recorded for an identical item,2600mAh
POWER BANK external portable USB battery charger for mobile phones, being
offered by a single
seller (bg27cyf). The data recorded includes the following elements: shipping
method (free shipping, buyer pays $1.99 shipping), number of bids (as
calculated by eBay, including multiple bids by a single bidder) and final
selling price (winning bid). The five-week period was used to lessen the
potential for market price changes due to the release of new models or
technology. The high sales volume of these items assisted the data collection
process. For example on 25th June 2014 at 15:00 there were 9,283 2600mah USB power bank items
listed for sale, of which 189 were being offered using the auction format, with
32 auctions ending within next 24 hours.
SUMMARY STATISTICSTABLE
1: A SUMMARY OF THE DATA COLLECTED FROM 133 AUCTIONS (N=133)
Summary statistics - mean(stdev)
Free shipping
Buyer pays $1.99 shipping
Number of bids
14.81 (5.23)
14.12 (6.54)
Final aggregate sale revenue
$5.55 (1.40)
$7.61 (2.88)
Weekend average aggregate sale
revenue
$5.14 (0.75)
$6.62 (0.25)
Weekday average aggregate sale
revenue
$5.81(0.33)
$7.98 (0.89)
Each of the 133 auctions in this
study resulted in a sale. The auction outcomes displayed a considerable
variation in the number of bids, minimum being 5, and the maximum being 34
bids.DATA
ANALYSIS AND FINDINGSA
test of the revenue equivalence theorem relating to partitioned pricing in eBay
auctions. H1 stated that an item offering free shipping (bundled) will
achieve a higher final sale revenue as an identical item offering shipping at a
fixed, specified cost (partitioned price @ $1.99). A one-way ANOVA was conducted to compare the effect
of shipping options on final selling revenue in free shipping and buyer pays
$1.99 shipping fee conditions. The final selling revenue differed significantly
across the two shipping options at the p<0.05
level, F (1, 132) = 30.52, p = .000. The results clearly indicate that an
item offered with a $1.99 shipping fee component results in higher final sale
revenue than an item offering free shipping, thus H1 is not supported. This
result supports the proposition that shipping charges have less influence on
buyers than the base price because buyers either fail to process the shipping
charges or focus on the base price and adjust insufficiently for the shipping
charges (Morwitz et al., 1998 Xia Monroe, 2004). Impact
of the number of bids on final sale price H2a stated that an item offering
free shipping will receive a greater number of bids than an identical item
offering shipping at a fixed, specified cost ($1.99). In other words, sellers
following eBay s suggested strategy will
benefit from extra bidders being attracted to the items they list for auction. A one-way between subjects ANOVA
was conducted to compare the effect of shipping options on the number of bids
received, in free shipping and buyer pays $1.99 shipping fee conditions. The
analysis revealed that the shipping option did have a significant, positive,
though relatively minor effect on the number of bids received. The number of
bids received differed across the two shipping options at the p<0.05 level, F (1, 132) = 11.95, p =
.000. The results indicate that an item offered with no shipping fee component
(free shipping) results in a greater number of bids than an item offering shipping
at a fixed, specified cost ($1.99), thus H2a is supported. However, the actual difference between the
average number of bids [free shipping = 14.81 buyer pays $1.99 shipping fee = 14.12
6.8%] is relatively minor. H2b
stated that
an item that receives a greater number of bids than an identical item will
achieve higher final sale revenue. As mentioned above, this follows eBay s
recommendation to sellers. A
one-way ANOVA was conducted to compare the effect of the number of bids on the
final selling revenue in free shipping and buyer pays $1.99 shipping fee
conditions. The analysis revealed that number of bids did have a significant,
negative effect on the final selling revenue across the two shipping options at
the p<0.05 level, F (1, 132) =
11.95, p = .000. The results indicate that an item receiving a greater number of
bids (free shipping) achieved lower final sale revenue than an item offering shipping
at a fixed, specified cost ($1.99), thus H2b is not supported. Weekend
effect H3 stated that auctions ending on
the weekend (Saturday, Sunday) will achieve higher final sale revenue than
auctions ending on weekdays. A
one-way ANOVA was conducted to compare the effect of ending the auction on a
weekend or a weekday on the final selling revenue in free shipping and buyer
pays $1.99 shipping fee conditions. The analysis indicates that ending auctions
did have a significant, negative effect on the final selling revenue across the
two shipping options at the p<0.05
level, F (1, 132) = 8.32, p = .004. The results show that auctions that end
on a Saturday or Sunday achieved lower final sale revenue, thus H3 is not supported.DISCUSSION AND FUTURE RESEARCH lt;/h1>A primary issue for people who use
online auction sites is the shipping fee decision. Should they specify a
shipping fee as a separate component to be added to the price for the actual
item or combine these into one bundled price, referred to as free shipping?
Obviously, shipping is not free someone needs to pay and sellers using the
eBay auction platform need to consider eBay s policies that reward sellers that
offer free shipping. Another important factor for sellers using online auction
sites is deciding which day of the week to end their auctions to gain the
highest sale price.The findings indicate that sellers
benefit significantly by partitioning shipping fees rather that offering free
shipping. Sellers offering free shipping received $5.55 (average) per item,
while sellers requiring buyers to pay a shipping fee received $5.60 (average)
per item plus $1.99 resulting in a $2.04 or 36 percent premium. The size of
the premium is a surprise because the shipping fee was clearly displayed under
the current bid price. This may be due to the seller offering a standard,
international shipping fee, resulting in the buyer s loss aversion was lowered
(Kahneman Tversky, 1979 Tversky Kahneman, 1991). This finding is particularly
noteworthy as EBay actively encourages sellers to offer free shipping
based on the conclusion that free shipping indirectly affect final sale price
via an increased number of bids (Hou Blodgett, 2012). Interestingly, the
items offering free shipping did receive more bids, a relatively minor but
statistically significant 6.8 percent, but this did not result in these items
achieving a higher final sale revenue.Another
interesting finding was that the weekend effect was not supported. The results
show auctions offering free shipping and ending on weekdays achieved a 12
percent premium when compared to those ending on weekends. Auctions requiring
$1.99 shipping fee and ending on weekdays achieved an 18 percent premium when
compared to those ending on weekends. These results do not support findings
reported by several previous studies (Wood Kauffman, 2001 Melnick Alm, 2003 Lucking-Reilly et al. 2007). This may result from the opening of the huge mobile
market by the introduction of the iphone in 2007 with its user friendly
touchpad design and the android operating system in 2010. In 2013, eBay`s
mobile commerce (smartphone tablet) volume increased by 75 percent, eBay increased its mobile users by more than
3.2 million individuals and 22 percent of eBay`s sales were made via mobile (http://www.retailinasia.com/article/tech/technology/2013/10). It would be interesting to compare the results of
this study with a study, using the same variables, of auctions using an item
from a different product category. Further, it would be useful for future
research to examine the effect of offering this item at a Buy it Now set price
on final selling revenue using the same
variables.Acknowledgement Funding
for this study was provided by Khon Kaen University International College lt;/b>REFERENCES lt;/h1>Bajari, P., Hortacsu, A.,
(2003). The Winner`s Curse, Reserve Prices, and Endogenous Entry: Empirical
Insights from eBay Auctions. The RAND
Journal of Economics, 34(2), 329-355.Beach, L., (1993).Image Theory: an
Alternative to Normative Decision Theory. Advances
in Consumer Research, 20, 235-238Burman, B., Biswas, A., (2007),
Partitioned Pricing: Can We Always Divide and Prosper? Journalof Retailing,
Vol. 83, No. 4, 423-436.eBay. (2013) Selling practices
policy. Retrieved on 10July 2014 from http://pages.eBay.com/ help/policies/selling-practices
eBay. (2013) How do I offer free shipping? Retrieved on 10July 2014 from http://pages.eBay.com/pt/en-s/help/ pay/questions/free-shipping.html
Hansen, R. (1985). Empirical Testing of Auction Theory. American Economic Review, AEA Papers and Proceedings, 75, 862-865. Hossain, T., Morgan, J., (2006). Plus Shipping and Handling: Revenue (Non) Equivalence in FieldExperiments on eBay. Advances in Economic Analysis Policy, 6(2),Article3 Hou, J., Blodgett, J., (2012) Do bidders compensate for shipping fees in online auctions? Journal of Services Marketing, 26(6) 435-443. Kahneman, D., Tversky, A., (1979). Prospect Theory: An Analysis of Decision under Risk. Econometrica, 47(2), 263 292. Kahneman, D., Tversky, A. (1984).Choices, Values and Frames.American Psychologist, 39, 341-350 Ku, G., Malhotra, D., Murnighan, J. K. (2005) A model of decision-making: A study of auction fever in live and internet auctions. Organizational Behavior and Human Decision Processes, 96, 89 103. Lucking-Reiley, D. (2000) Auctions on the Internet: what s being auctioned, and how? Journal of Industrial Economics, 48(3):227 252.
Lucking-Reiley, D., Bryan, D., Prasad, N., Reeves, D. (2007). Pennies from eBay: the determinants of price in online auctions. Journal of Industrial Economics, lt;/i>55(2):223 233. Melnick, M., Alm, J. (2002). Does a seller s ecommerce reputation matter? Evidence from eBay auctions. Journal of Industrial Economics, 50, 337-349.
Morwitz, K., Greenleaf, E., Johnson, E., (1998). Divide and Prosper: Consumers` Reaction to Partitioned Prices. Journal of Marketing Research, 35, 453-463. Retail Tech Innovation (2013, 18th October). eBay Inc. reports strong Q3 growth. Retrieved on 12 July 2014 from http://www.retailinasia.com/article/tech/technology/2013/10/
Reynolds, K., Gilkeson, J., Niedrich, R. (2009). The Influence of Seller Strategy on the Winning Price in Online Auction.A moderated Mediation Model, Journal of Business Research, 62, 22-30. Schamel, G. Online Auctions: Pricing Bordeaux Wine on eBay, Humboldt University Berlin Working Paper, 2004
It is common for eBay sellers to separate the price a buyer pays for an item into two sections, firstly the price for the actual item and the other price for shipping and handling, referred to a price partitioning. Hossain Morgan (2006) discuss the concept of mental accounting (Kahneman Tversky, 1984 Thaler, 1985) where a buyer focuses on the actual purchase price but fails to adequately add on the related shipping cost. Therefore some bidders will calculate the shipping fee fully or at least in part, while others may totally ignore this added cost (Hou Blodgett, 2012). An issue that this study shines a light on is eBay s campaign encouraging sellers to offer free shipping, for example the following information is available on the eBay website. If you offer free shipping in your listing and we can confirm the buyer didn`t pay for shipping you will automatically receive a 5-star rating on your shipping and handling charges detailed seller rating. (eBay, 2013) Attract more buyers and get higher placement in search results by offering free shipping. (eBay, 2013) Therefore, sellers that do not offer free shipping risk having their item being placed lower in the search results which can be a telling disadvantage in a competitive homogeneous category. Of course shipping is not free, therefore if the buyer does not pay, the seller must pay the cost for postage. Also image theory (Beach, 1993) suggests that individuals often create decision rules when they have numerous alternatives from which to choose, the alternatives that do not match these rules are rejected. eBay proposes that items offering free shipping attract a greater number of buyers, and suggests that many buyers may have a decision rule that requires only bidding on items that offer free shipping. In fact, eBay has a filter available that results in only auctions offering free shipping being displayed for any particular search query. Results from previous research support the proposition that a higher number of bids should positively affect the winning price of an auction (Hansen, 1985 Vincent, 1995 Bajari Hortacsu, 2003 Reynolds, Gilkeson Niedrich, 2009). The format of this paper is as follows. First, the hypotheses and support from the literature. Secondly, the data collection process is described and summary statistics for the data collected are provided. Next, a descri ption of the empirical results for the study are described. Finally, a discussion of the results, their limitations and the implications for future research.Literature ReviewEarlier research has explored a range of topics related to price partitioning and online auctions. Morwitz, Greenleaf Johnson (1998) allocated names to each price partition, the base price and the surcharge in relation to eBay auctions, the price of the item being auctioned is the base price and the shipping cost is the surcharge ( shipping cost is used to represent the cost of shipping and handling). Morwitz et al. (1998) presupposed that firms implemented a price partitioning strategy because it would increase consumer demand and then argued that if consumers calculate the base price and the surcharge with the same accuracy as they use when considering the bundled price, the partitioned price should not increase demand. The current study uses the number of bids as a proxy for demand . Morwitzet al. (1998) proposed that surcharges had less influence on buyers than the base price because buyers either fail to process the surcharge or focus on the base price and adjust insufficiently for the surcharge. Therefore, sellers using a partitioning price strategy may receive greater profits when buyers disregard the surcharge. Xia Monroe (2004) asked participants to consider a desktop computer purchase where shipping and handling were either included or partitioned from the base price. Despite the fact that the total price was also presented in the price partitioned condition, purchase intentions were higher when the price was partitioned than when it was combined. The prediction that price partitioning can increase purchase intentions seems to challenge some findings from prospect theory (Kahneman Tversky 1979) which propose that people prefer to integrate losses, and therefore would consider a lower total cost from bundled pricing than from price partitioning. Choosing which day of the week to finish an auction is another strategy component for the seller to consider, however there is a dearth of literature available. Studies have found that auctions ending during the weekend result in higher final prices than auctions that ended on weekdays (weekend effect) and suggest that people are willing to bid higher for the same item when they have more time to consider the purchase (Wood Kauffman, 2001 Melnick & Alm, 2002 Lucking-Reilly, Bryan, Prasad, Reeves, 2007), however, Schamel (2004) could not support a weekend effect. This study is important because it holds values for numerous elements regarding a seller s auction strategy constant, and thus allows focus on investigating the optimal shipping method and day to end an auction. Hou Blodgett (2012) noted that keeping background factors like the starting bid and book value constant was a key to isolating the effect of shipping fees on consumers online bidding decisions. An important factor in this study is that the seller offered shipping without distinction between local and international destinations and this factor has not been investigated previously. All items were listed on EBay s U.S site but available on all eBay sites, the items were listed in US dollars and dispatched from Hong Kong.HYPOTHESES DEVELOPMENTPartitioned pricing refers to the price of a single product in which the surcharge represents an additional amount intrinsic to the overall purchase cost, like shipping and handling fees (Burman Biswas, 2007).The notion of revenue equivalence between different eBay listings for an identical product is quite simple. If, in two standard English auctions, the shipping costs serve as the only transaction cost paid by the bidder, then the bidder uses the total cost of the item (price plus shipping) in the decision making process and selects the item that has the lowest total cost, regardless of how that cost is structured between the price and shipping charge. Therefore: Item A1 [Free shipping] Final bid + Shipping ($0.00) = R1Item A2 [Buyer pays shipping] Final bid + Shipping ($1.99) = R1Where R1= Seller s final aggregate sale revenue H0. An item offering Free Shipping (bundled price) will achieve the same final aggregate sale revenue (R1 ) as an identical item offering shipping at a fixed, specified cost (partitioned price). H1. An item offering Free Shipping (bundled price) will achieve a higher final aggregate sale revenue (R1 ) as an identical item offering shipping at a fixed, specified cost (partitioned price).
Impact
of the number of bids on final sale price
Standard auction theory proposes
that a greater number of bidders will positively impact the final sale price
(Hansen, 1985 Vincent, 1995). This supports EBay s statement that offering
free shipping will result in more bids. Willcox (2000) argues that this
positive association results from there being more information available for
each bidder. Auction fever suggests that even rational bidders with access to
perfect information can be affected by profound emotion (Ku, Malhotra Murnighan,
2005). H2a. An item offering Free Shipping (bundled price) will
receive a greater number of bids (demand) than an identical item offering
shipping at a fixed, specified cost (partitioned price).H2b. An item with a greater number of bids (demand) will achieve
higher final aggregate sale revenue for an identical item Weekend effect lt;/h2>Much
of the advice found on EBay seller forums suggests that sellers should end
their auction on the weekend, because it will attract more bidders as people
have more leisure time to participate in online auctions on weekends. Wan and
Teo (2001) suggest that people who are interested in bidding on eBay can do so
with ease because bids can be submitted anytime anywhere. Earlier studies have
found the weekend effects on auction price were not significant
(Lucking-Reilly, 2000 Lucking-Reilly et al. 2007 Wan Teo, 2001
Melnik Alm, 2002). Schamel (2004) could not support a weekend effect,
finding that auctions ending on Mondays and Saturdays resulted in final selling
prices 6% higher (at 1% significance) relative to the Sunday base, while
Tuesdays and Wednesdays showed no significant difference.H3. Auctions ending on the weekend (Saturday, Sunday) will
achieve higher final aggregate sale revenue than auctions ending on weekdaysMETHODOLOGYSeller Controlled Variables lt;/span>The primary interest of this study
is learning the validity of suggestions and policy found on the eBay website
regarding the benefits to sellers of offering free shipping as compared to
buyers paying a shipping fee (policy) and the weekend effect (suggestion). To
investigate these issues dummy variables are allocated free shipping = 0 and
$1.99 shipping fee = 1, while auctions ending on a weekend = 1 and week days =
0. Any seller controlled
variable that could have an effect on the dependent variable (final selling
revenue), other than the independent variable (shipping method) has been
controlled to keep them from affecting the dependent variable. a. Identical item = 2600mAh POWER BANK external portable USB battery
charger for mobile phones b. Opening bid = $0.01c.
Descri ption = identical written descri ption and photos (see
Appendix A)d.
Worldwide shipping = Standard international maile.
Auction duration = 5 daysNote:i. This seller offered at
least 4 items for auction every day of the study period.ii. The ending time for each auction
in this study was between 02:56:19 and 03:05:36 PDT
[a gap of less than 10 minutes] therefore potential bidders had easy
opportunities for comparison.iii. Note: $1.99 shipping fee is 35.86% of the average final sale
revenue for free shippingDATA
COLLECTION Data were collected directly from www.eBay.com
on a daily basis, during a five-week period in June and July 2014. Auction data
for this study were recorded for an identical item,2600mAh
POWER BANK external portable USB battery charger for mobile phones, being
offered by a single
seller (bg27cyf). The data recorded includes the following elements: shipping
method (free shipping, buyer pays $1.99 shipping), number of bids (as
calculated by eBay, including multiple bids by a single bidder) and final
selling price (winning bid). The five-week period was used to lessen the
potential for market price changes due to the release of new models or
technology. The high sales volume of these items assisted the data collection
process. For example on 25th June 2014 at 15:00 there were 9,283 2600mah USB power bank items
listed for sale, of which 189 were being offered using the auction format, with
32 auctions ending within next 24 hours.
SUMMARY STATISTICSTABLE
1: A SUMMARY OF THE DATA COLLECTED FROM 133 AUCTIONS (N=133)
Summary statistics - mean(stdev)
Free shipping
Buyer pays $1.99 shipping
Number of bids
14.81 (5.23)
14.12 (6.54)
Final aggregate sale revenue
$5.55 (1.40)
$7.61 (2.88)
Weekend average aggregate sale
revenue
$5.14 (0.75)
$6.62 (0.25)
Weekday average aggregate sale
revenue
$5.81(0.33)
$7.98 (0.89)
Each of the 133 auctions in this
study resulted in a sale. The auction outcomes displayed a considerable
variation in the number of bids, minimum being 5, and the maximum being 34
bids.DATA
ANALYSIS AND FINDINGSA
test of the revenue equivalence theorem relating to partitioned pricing in eBay
auctions. H1 stated that an item offering free shipping (bundled) will
achieve a higher final sale revenue as an identical item offering shipping at a
fixed, specified cost (partitioned price @ $1.99). A one-way ANOVA was conducted to compare the effect
of shipping options on final selling revenue in free shipping and buyer pays
$1.99 shipping fee conditions. The final selling revenue differed significantly
across the two shipping options at the p<0.05
level, F (1, 132) = 30.52, p = .000. The results clearly indicate that an
item offered with a $1.99 shipping fee component results in higher final sale
revenue than an item offering free shipping, thus H1 is not supported. This
result supports the proposition that shipping charges have less influence on
buyers than the base price because buyers either fail to process the shipping
charges or focus on the base price and adjust insufficiently for the shipping
charges (Morwitz et al., 1998 Xia Monroe, 2004). Impact
of the number of bids on final sale price H2a stated that an item offering
free shipping will receive a greater number of bids than an identical item
offering shipping at a fixed, specified cost ($1.99). In other words, sellers
following eBay s suggested strategy will
benefit from extra bidders being attracted to the items they list for auction. A one-way between subjects ANOVA
was conducted to compare the effect of shipping options on the number of bids
received, in free shipping and buyer pays $1.99 shipping fee conditions. The
analysis revealed that the shipping option did have a significant, positive,
though relatively minor effect on the number of bids received. The number of
bids received differed across the two shipping options at the p<0.05 level, F (1, 132) = 11.95, p =
.000. The results indicate that an item offered with no shipping fee component
(free shipping) results in a greater number of bids than an item offering shipping
at a fixed, specified cost ($1.99), thus H2a is supported. However, the actual difference between the
average number of bids [free shipping = 14.81 buyer pays $1.99 shipping fee = 14.12
6.8%] is relatively minor. H2b
stated that
an item that receives a greater number of bids than an identical item will
achieve higher final sale revenue. As mentioned above, this follows eBay s
recommendation to sellers. A
one-way ANOVA was conducted to compare the effect of the number of bids on the
final selling revenue in free shipping and buyer pays $1.99 shipping fee
conditions. The analysis revealed that number of bids did have a significant,
negative effect on the final selling revenue across the two shipping options at
the p<0.05 level, F (1, 132) =
11.95, p = .000. The results indicate that an item receiving a greater number of
bids (free shipping) achieved lower final sale revenue than an item offering shipping
at a fixed, specified cost ($1.99), thus H2b is not supported. Weekend
effect H3 stated that auctions ending on
the weekend (Saturday, Sunday) will achieve higher final sale revenue than
auctions ending on weekdays. A
one-way ANOVA was conducted to compare the effect of ending the auction on a
weekend or a weekday on the final selling revenue in free shipping and buyer
pays $1.99 shipping fee conditions. The analysis indicates that ending auctions
did have a significant, negative effect on the final selling revenue across the
two shipping options at the p<0.05
level, F (1, 132) = 8.32, p = .004. The results show that auctions that end
on a Saturday or Sunday achieved lower final sale revenue, thus H3 is not supported.DISCUSSION AND FUTURE RESEARCH lt;/h1>A primary issue for people who use
online auction sites is the shipping fee decision. Should they specify a
shipping fee as a separate component to be added to the price for the actual
item or combine these into one bundled price, referred to as free shipping?
Obviously, shipping is not free someone needs to pay and sellers using the
eBay auction platform need to consider eBay s policies that reward sellers that
offer free shipping. Another important factor for sellers using online auction
sites is deciding which day of the week to end their auctions to gain the
highest sale price.The findings indicate that sellers
benefit significantly by partitioning shipping fees rather that offering free
shipping. Sellers offering free shipping received $5.55 (average) per item,
while sellers requiring buyers to pay a shipping fee received $5.60 (average)
per item plus $1.99 resulting in a $2.04 or 36 percent premium. The size of
the premium is a surprise because the shipping fee was clearly displayed under
the current bid price. This may be due to the seller offering a standard,
international shipping fee, resulting in the buyer s loss aversion was lowered
(Kahneman Tversky, 1979 Tversky Kahneman, 1991). This finding is particularly
noteworthy as EBay actively encourages sellers to offer free shipping
based on the conclusion that free shipping indirectly affect final sale price
via an increased number of bids (Hou Blodgett, 2012). Interestingly, the
items offering free shipping did receive more bids, a relatively minor but
statistically significant 6.8 percent, but this did not result in these items
achieving a higher final sale revenue.Another
interesting finding was that the weekend effect was not supported. The results
show auctions offering free shipping and ending on weekdays achieved a 12
percent premium when compared to those ending on weekends. Auctions requiring
$1.99 shipping fee and ending on weekdays achieved an 18 percent premium when
compared to those ending on weekends. These results do not support findings
reported by several previous studies (Wood Kauffman, 2001 Melnick Alm, 2003 Lucking-Reilly et al. 2007). This may result from the opening of the huge mobile
market by the introduction of the iphone in 2007 with its user friendly
touchpad design and the android operating system in 2010. In 2013, eBay`s
mobile commerce (smartphone tablet) volume increased by 75 percent, eBay increased its mobile users by more than
3.2 million individuals and 22 percent of eBay`s sales were made via mobile (http://www.retailinasia.com/article/tech/technology/2013/10). It would be interesting to compare the results of
this study with a study, using the same variables, of auctions using an item
from a different product category. Further, it would be useful for future
research to examine the effect of offering this item at a Buy it Now set price
on final selling revenue using the same
variables.Acknowledgement Funding
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