1.2 EVALUATING CONSUMER SURPLUS
The
available data from traditional auctions correlated with Vickrey’s Revenue
Equivalence Theorem, showing that different auctions types actually lead to
identical seller revenues, yielding the same results in the 1968
Ortega-Reichert thesis. At equilibrium, researchers assumed that the bidder
valuing the object most was the auction winner and the person making the lowest
bid expected a payment of zero. The mechanism revealed that the expected
revenue for the seller was exactly the value of the object to the second
highest bidder, also known as a uniform price auction.
Using
empirical data from 4514 e-Bay auctions, Bapna, Jank and Shmueli (2003) took
measuring consumer welfare to a new level by evaluating a new set of
assumptions adding to the Milgrom-Weber theory.
As the online environment displays the same incentives as a traditional
auction, Bapna et al. considered five additional characteristics specific to
e-Bay. No alternative buying options are available to the consumers, although
this was later regarded as economically significant for the study, no
single-bid auctions in order to avoid unreliable surplus information, no time
costs involved or the Buy it Now option, that allows no competitive bidding
leading to higher prices and no collusive bidding were included in the
statistics.
The
economic impact of alternative buying options is a relevant argument for a
smaller maximum amount a consumer is willing to pay for Asics Women's Gel Nimbus 13, as asymetric
information allows him to assess the highest bid for a specific item. Knowing
that both e-Bay or another online store and the shop around the corner sell the
same item at similar prices will be an incentive for a consumer to choose the
option that yields the highest personal consumer surplus and the lowest time
costs.
Bearing
in mind that Bapna et al. ignore the role of time in their study, it can also
be considered that a consumer will be more tempted to buy the item from the
provider that ensures a fast delivery and order processing time, making the
shopping experience more pleasant and economically efficient. As the Buy it Now
option was excluded due to the obvious lack of an auction process, the
researchers do assesss the role of time when revising bids using Cniper to purchase Asics running shoes.
Cniper.com
is a sniping tool made available by statisticians supporting Bapns‘s paper as a
tool to quantify the highest value a buyer is willing to offer in order to
purchase a certain product. As e-Bay does not provide the exact history of all
the bids in an auction and it excludes the highest bid (consumers only pay the
second highest bid in competitive auctions), the free sniping system allowed
reserchers to collect accurate sample data and process the individual values of
consumer surplus for the 4514 cases. This constitutes a significant incentive
for users as it did not charge any fees, it was developed closely with e-Bay
servers and guaranteed no delays in the last minute attempts to secure the
winning auction.
A
recent conference held by the Federal Trade Commission allowed researchers to
present their findings on the Economics of Internet Auctions, accounting for
the past three decades of online trading. Professor Ravi Bapna presented his
acclaimed paper on consumer surplus, analysing 18 major e-Bay categories
(including both normal and inferior goods) and quantifying the total consumer
welfare figure to $7.05 bn in 2003 – the higher bound was calculate to $7.68bn.
Using a 95% confidence interval in his summary statistics, he concluded that,
on average, the median per auction was $4.00, distributed almost evenly among
experienced and first time users.
Analysing
the results from a time perspective, Bapna et al. discovered that 91.6% of
bidders never revise their bids and more experienced users are inclined to
snipe, as the winning rate of a normal bid is 21.79% compared to a winning rate
of 66.73% when sniping. This shows there is a positive correlation between the
winning rate and the end time of the auction. Also, 88.8% of sniping bids have
found to have consumer surplus, adding to the argument that sniping does
increase welfare when no time costs are involved.
According
to Wenyan and Bolivar, different types of buyers usually tend to adopt a
specific behaviour whilst bidding, based on their experience and feedback
score, leading to a proportional increase in their final valuation. ‘Naive‘
buyers bid a single increment, revising their final bid multiple times whilst
‘frank‘ bidders seem more willing to start bidding by offering the maximum
value they‘re will to pay for the item on offer. These behaviours yield similar
consumer surpluses, as they involve auction wars and time costs that add to the
final value of the product. The ‘sophisticated‘ buyers are the experienced
users that use sniping to minimise costs and increase personal welfare, as they
avoid any price inflation caused by
strong competition-http://asics-nimbus.com/asics-mens-gel-nimbus-13 .
Figure 1 a) illustrates the consumer
surplus of a person willing to pay £70 for an auctioned good on eBay but had to
give up only £2 in order to obtain it. As already stated, the area under the
demand curve and the final price the bidder has to pay, the shaded area in the
first diagram, will be the gain in consumer surplus. If, however, the same
customer were to engage into a price war, the surplus would have fallen with
every bid from alternate agents, as demonstrated on diagram (1) b). It should
also be mentioned that the vast majority of research is made using competitive
auctions, where more than one bid was made for a specific item.
