The Role of Uncertainty Stemming from Product Monetary Value in Online Auctions: The Case of Search Goods

Achita (Mi) Muthitachareon, Mehmet Barut, and Khawaja A. Saeed
International Journal of Electronic Commerce,
Volume 19, Number 1, Fall 2014, pp. 65-98.

Abstract: This study strives to demonstrate that uncertainty in online auction transactions is partly driven by product monetary values. We argue that as product monetary value increases, so do transaction uncertainty and the amount of consumers’ cognitive effort required for analyzing the transaction. This effect can be observed through the changing roles of price premium determinants such as seller reputation, seller strategies, bidder strategies, and market competition among auctions that offer identical items. Drawing upon consumers’ goal to minimize their cognitive effort, this study develops two online auction price premium models that are customized to different levels of product monetary value. To test the models, online auction transactions from eBay were collected and separated into lower-priced and higher-priced auction samples. The results show that consumers’ goal of minimizing cognitive effort in the bidding process can explain most of the relationships between price premium and its determinants proposed in this study. Some findings, despite appearing to be counterintuitive, produce logical and actionable guidelines for the auction community. For example, we recommend that auction sellers of lower-priced products adopt shorter auction durations because it helps bidders minimize their cognitive effort through lower monitoring cost, which subsequently increases their willingness to pay extra price premiums.

Key Words and Phrases: Bidder’s cognitive efforts, cognitive effort, electronic auctions, online auctions, online bidding, price premium, product monetary value, transaction uncertainty.