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Adverse Selection In Electronic Markets: Evidence From Online Stamp Auctions

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  • Sanjeev Dewan
  • Vernon Hsu

Abstract

We analyze adverse selection costs in online stamp auctions, based on a comparison of prices on eBay with those of matched stamps at a specialty stamps auction site in the U.S., Michael Rogers, Inc. (MR), which we know a priori has low quality uncertainty. We find that buyer prices are 10–15% lower on eBay as compared to MR, and the price difference, increases with the value of the stamps. Consistent with this adverse selection discount we find that the seller reputation mechanism on eBay has an economically modest, although statistically significant, effect on auction price and probability of sale.

Suggested Citation

  • Sanjeev Dewan & Vernon Hsu, 2004. "Adverse Selection In Electronic Markets: Evidence From Online Stamp Auctions," Journal of Industrial Economics, Wiley Blackwell, vol. 52(4), pages 497-516, December.
    • Handle: RePEc:bla:jindec:v:52:y:2004:i:4:p:497-516
    DOI: 10.1111/j.0022-1821.2004.00237.x
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