Trying to put markets for everything under the sun — think groceries and pet food — on the Internet was a demonstrably bad idea. But clearly, there are some markets made for the online medium, like the virtual auctions managed by eBay. Price discovery, in economic terms, is easy and open, a wealth of data can be presented, and transaction costs are low.
Those very characteristics work to the advantage of researchers, especially those like Charles Wood , an assistant professor of management at the University of Notre Dame, who was a software developer before joining academia. Mr. Wood wrote a nifty little Java program, called eDrill, to automate the collection of data off the Web. He and Robert Kauffman, an associate professor at the University of Minnesota’s graduate school of management , then embarked on a study of coin auctions on eBay, from 1999 to 2001.p. The pair chose auctions of mostly 19th century coins because there is a brisk trade in them, and the coins have a standard price-list value — a good market, they figured, for valid comparisons of buying and selling behavior online. Besides, Mr. Wood said, “I’m a coin collector.”
Their conclusions? It is said that a picture is worth a thousand words, but in Internet auctions it is worth about 12 percent, according to the professors. That is, if two coins of the same type, age and condition were auctioned on eBay, the one accompanied by a picture sold for 12 percent more than a text-only offering.
Equivalent coins sold for 2 percent more on weekends that during weekdays. The effect held up for the same bidders and the same items. The weekend effect, Mr. Wood said, was a little surprising. But he speculated there was a “comfort factor” when people had time to consider a purchase over the weekend. “No matter what economists might think, not everyone is a calculating machine,” Mr. Wood said.
Next month, Mr. Wood will present a paper on online shilling, the practice of pumping up the price of your own merchandise, either yourself or through an intermediary. Mostly, he said, “they run up the bid early, and they drop out,” rather than risk being left holding the final bid.