Trust, reputation and bidding behaviour in online mystery auctions

ABSTRACT

We use transactions from a distinctive online environment of ‘mystery’ auctions to examine the role that trust plays and how it impacts bidding behaviour when the exact characteristics of a good being auctioned are purposefully concealed from buyers. We show that buyers are generally trusting seller claims in online transactions and that seller reputation becomes significantly more important to buyers (as demonstrated by their bids) when the quality (or value) of the good is unspecified. Our findings can be extrapolated to consider broader economic implications of bidding behaviour impacted by trust, such as in financial markets, where over-bidding may lead to price bubbles.

KEYWORDS:

• E-commerce
• auctions
• gift cards
• financial markets
• reputation

JEL CLASSIFICATION:

• L81
• D44
• L15

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Mystery auctions were banned in 2008 under eBay’s ‘chance listings policy’ (eBay, 2016).

² For auctions with reported min/max values and total number of cards, we calculate expected seller losses of $79.96 per auction, using a conservative estimate of one legitimate card at the maximum stated value. Dishonest sellers (those with no cards at the maximum value) have expected profits of $206.31 per auction.

³ Although we do not observe risk preferences explicitly, winning bidders could be characterized as exhibiting lower levels of risk aversion than nonwinning bidders. The findings are thus driven, at least partially, by the risk preferences of the buyers in the market.

⁴ The coefficient on the log of the maximum value is 0.17, and the coefficient on the missing maximum dummy is 0.61. Comparing the contribution of each variable to the winning price: 0.17log(max) < 0.61 when x < 36.