EBay Saves Billions For Bidders

Maryland professors found that buyers saved an average of $4 per person, or $19 billion total, at the popular online auction site. By W. David Gardner

By InformationWeek

If you think you would save money by bidding on eBay (NSDQ: EBAY) auctions, you would likely be right, according to a study released Monday by researchers at the University of Maryland. In fact, the researchers maintain eBay bidders saved $19 billion in 2007 at the popular auction site.

Researchers Wolfgang Jank and Galit Shmueli studied eBay online auctions in 2003 and found savings of $7 billion; they arrived at the $19 billion figure by extrapolating the figures forward into 2007.

The two associate professors at the university's Robert H. Smith School of Business worked with the Indian School of Business' Ravi Bapna, who maintained a sniper Web site that assisted bidders in automatically placing bids at the last minute of auctions. Bapna, an associate professor at the Indian school, was able to use his cniper.com site to calculate the difference between the actual purchase price paid for auction items and the top price bidders stated they were willing to pay.

The difference is called "consumer surplus" and the Maryland researchers found it averaged at least $4 per auction.

"This is the first time consumer surplus has been quantified in online auctions," said Shmueli in a statement. "You just can't quantify this for traditional retailers."

Jank said all three major parties involved in eBay's auctions -- buyers, sellers, and the company itself -- benefit from eBay auctions.

"All three parties on eBay win," he said. "Obviously the consumers win because they accrue a very large surplus... which is either money they can put in the bank or spend."

Noting that it's difficult to quantify the value for sellers, Jank said they win in the sense that eBay attracts a "large critical mass of potential buyers" for the sellers. The value to eBay is "obvious," he said, because of the funds generated for the company by the auctions.

More than 4,500 U.S. and European eBay auctions in 2003 were examined in the professors' research. Their complete study, titled "Consumer Surplus in Online Auctions," will be published in the Journal of Information Systems Research.