Can on-line auctions beat on-line catalogs

In this paper, we report the results of an extensive study comparing the price paid in 473 online auctions with the prevailing prices of identical goods sold through online catalogs. Our results reveal a striking phenomenon: auction winners enjoy an average discount of 25 % relative to the catalog prices for identical items sold at the same site. The average discount grows to 39 % if identical items are on sale only on other sites. We also find that this discount is a function of the monetary value of the items being auctioned and more expensive items are typically associated with lower discount rates. We use these results to characterize the major costs that are imposed on online auction participants and we analyze the impact of these costs on the resulting auction closing price. Our information economics model provides an explanation for the deep discounts observed in our research and provides some conceptual guidelines for online auction design. 1