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Abstract
The iPhone 4 was introduced into the UK market on 24th June 2010 to significant consumer interest. Demand revealed itself exceeding supply through conventional channels, since there was very extensive activity in terms of bidding on eBay auctions for the product. We monitored all UK eBay transactions on the iPhone 4 for six weeks from introduction, with total transactions amounting to around £1.5m. We analyse determinants of winning bids in terms of characteristics of the phone, the seller, and the buyer. Our most notable and novel finding relative to previous studies is a very significant premium over list price being paid in almost all cases, with positive uplift factors including whether the phone was unlocked and whether it could be sold overseas. Demand fell over time, as evidenced by lower achieved prices, but the fall in price was relatively modest. A significant premium of 32GB over 16GB versions is revealed.
Notes
We would like to thank Takuma Habu and Michaela Verzeroli for their assiduous work on data collection, Ashley Coombes for help in unearthing her previous work on the Manolo Blahnik shoehorn, and anonymous referees who made helpful suggestions on improving the exposition.
1. For an early but authoritative survey, see Bajari and Hortacsu (Citation2004).
2. This is according to Nielsen, quoted in Cabral and Hortacsu (Citation2010).
3. As an example of the hype, consider Apple’s slogan for the iPhone 4 “This changes everything. Again.”
4. This is not to say the finding is unique. A previous example on a much smaller data set concerning a fashionable shoehorn is reported briefly in a mimeo note by Waterson and Coombes (Citation2010), available from the corresponding author.
5. Roth and Ockenfels (Citation2002) discuss a number of hypotheses related to bidding strategies in eBay online auctions.
6. See Juda and Parkes (Citation2006) who examined sniping and related bidding strategies in an analysis of 1,956 eBay auctions for a Dell E193FP LCD monitor in 2005.
7. See also Anwar et al. (Citation2006) for complications relating to the winning bid implied by cross-bidding.
8. This is even after accounting for the fact that the winning bid is the second highest valuation, not the highest.
9. At least at the time of sale, there may be a “snob” value in being an early adopter (Geroski, Citation2003).
10. This was shortly after the United States but before a number of key markets including Hong Kong and Australia.
11. We can easily avoid double counting by using the 11-digit eBay ID number as a marker.
12. A note on postage: we decided against including the figure for postage in our analysis. This was for several reasons. First, the data on postage charges shows rather little variation, the minimum price being zero and the maximum £9, with £7 being the modal figure. Notice that this range amounts to around 1% of the achieved price (and further that the correlation of delivered price with net price is extremely high). Second, there are some missing observations on postage and some sellers proposed the buyer collect. It is difficult to know what figure to insert here. Third, there is some evidence that postage is treated differently by buyers (e.g. Hossain and Morgan, Citation2006).
13. Geroski (Citation2003, ch. 5) contains a discussion of the various roles that consumers can adopt in the early stages of an innovation.
14. Given that our interest is in willingness to pay, we are not overly concerned about whether the transaction failed to complete due to a fault on the seller’s side, although what evidence is available suggests the seller acted in good faith in the vast majority of cases.
15. The distribution of feedback scores had a mode of 1 (perfect feedback) and most other percentages were very high, so a dummy essentially captures the good feedback effect.
16. A larger number of bidders will tend to raise the price nearer to the winning bidder’s valuation. The reserve price, which can influence the outcome, is generally unknown. This must be distinguished from the start price, which we do know.
17. Most of our sellers appear only once. There appear to be 1,639 separate sellers, of whom 1,265 only sell one iPhone 4. However, sellers use aliases (and might have more than one alias) so we cannot be sure.
18. Casual observation of conventional open-outcry auctions shows that the auctioneer normally needs to warm up the bidding by starting low, or going below an initial suggestion, before the price starts to rise through that point again.
19. Of course, the day the sale closed is at least one day after the product was put up for sale.
20. In the linear functional form case, the coefficients can be read directly as premia applied to a particular characteristic (e.g. whether the phone is unlocked), but with the log form, the impact of a particular feature depends on the other features with which it is associated.
21. Notice this is very similar to the figure obtained from the linear functional form.
22. Clearly, in the base case of purchase from the Apple store, this variable makes no sense; it only makes sense in the auction context.