A new economics paper has found that prices for cars sold on eBay motors rises the more photos you post on the site (about $80 extra for each photo).
Remember that adverse selection (or the "winner's curse" in auctions) is caused by the fact a seller have more information about the quality of the car than do buyers or bidders (economists call this "information asymmetry"). If buyers offer a high price, then they get a mixture of high and low quality vehicles, and pay more--on average--than the vehicle is worth. So buyers offer only low prices, correctly anticipating that only low quality vehicles will be offered for sale.
So how does a seller with a high value car convince a buyer that it is of high quality. The authors suggest that offering photos is akin to a guarantee of quality, a type of signal:
By disclosing their private information on the auction Web page in text and photos, the seller offers a contract to potential buyers to deliver the item described in the listing. If the disclosures define sufficiently detailed and enforceable contracts, the initial information asymmetry should play no role in determining the performance of the market.
I received this from a former student who verified that this theory, at least, works in practice:
My most recent eBay vehicle sale was a 102,000 mile seven year old truck, tons of bidding and sold for $11,000 sight unseen to a buyer in New York.
Text of the eBay listing is included links to all of the photos you see here:
Photos of EVERY body panel, EVERY interior angle, EVERY tire, EVERY engine bay angle, etc. Buyer was DELIGHTED upon receipt and couldn't believe I'd sent it to him with a full tank of gas.
This definitely works in practice. I have tried it with a car and a truck. I guess the more information you share; the less likely you are hiding something. That extra 20 minutes of taking pictures will increase the sale something handsome.
ReplyDeleteThis is good to know- my car has been sitting on Autotrader for 2 months without any interest. I have a few unused photos so may test out this theory.
ReplyDeleteI definitely would not purchase an item online without having seen a picture first. Although the seller could theoretically alter the photo in some way, the act of putting one up signals that he or she believes that the item is at least worth looking at and would make me more likely to consider it. This is similar to studies that show that online dating profiles are more likely to be viewed or responded to if there is a picture attached to it.
ReplyDeleteAnother benefit of posting more pictures is that it screens out less serious buyers and thereby saves you time. Lots of information transferred to potential buyers seems to create "information symmetry" and leads to less shirking once the buyer sees the car in person.
ReplyDeleteWith the rise of internet shopping and auction sites, like eBay, information asymmetry is taken to a different level. Independent parties are allowed to sell their products online with little liability. It is easier to deceive buyers when they don’t have the opportunity to see a product before bidding on it. These problems arise because eBay sellers have better information than buyers about the quality of goods being offered for sale (Froeb and McCann, pg. 251). This is why I like your example about reducing information asymmetry by providing more pictures and information. This helps to mitigate the problem of adverse selection. Another helpful example is with sites like Amazon offering to endorse certain sellers and providing some type of recourse for dissatisfied buyers.
ReplyDeletePersonally, I am eBay user, both as buyer and seller of articles. The title of this paper generates doubts in me because of the figures, I have not had the opportunity to read it, but as the news heading when you first open the newspaper it was as always designed to attract the attention of simple readers and it does not hold any relationship with the detail of the news.
ReplyDeleteThe amount of $80 extra dollars per photo, I can imagine that it is related to a category of products, whose bid prices, could withstand this kind of extra rating at the original price or the original intention of selling supplier (s )of these items.
On the relationship of photos, prices, I would re-focus to demand generation, and increase in the symmetrical relationship that could generate incremental volume of photos of a good, as well as the increment in the interest on the property itself. The volume of photos, can produce in the observer a familiar sensation with the articles, as well as the same possess this desire, these previous elements can be catalysts in the subconscious of individuals who emit the sensation or possession of such desire or goods, and as therefore increases the will by the possession of such objects as the value of these by these individuals.
References: Froeb, McCann, Ward, Shor: (2014) Managerial Econonics. A Problem Solving Approach, Ohio: South Western Cengage Learning
I have looked at cars on Ebay before and have not bid on one because of worries about hidden issues and not being able to inspect the car in person. Ebay has an astronomical number of potential bidders, and, as stated in Managerial Economics: A problem solving approach, “to avoid the winners’ curse, you bid less aggressively as the number of bidders increases” (Froeb, et al., 2014, pg. 218). To counteract this effect, it is a good strategy for the auctioneer (or the ebay seller) to release as much information as possible. This strategy gives bidders the confidence to bid up to their estimated value. They don’t feel like they are missing the information needed to avoid the “winners’ curse.” As Froeb, et al. point out, “if releasing information is good for the auctioneer, it must be bad for the bidders” (Froeb, et al, 2014, pg.219). More information leads to more aggressive bidding, which results in the highest possible sale price.
ReplyDeleteThis strategy also effectively acts as a signal to the buyers that the product is of good quality. If I see a car advertised with only one picture, I assume that either the car is a piece of junk and the seller is trying to hide that, or I wonder if it the posting is a scam. Anyone can take an exterior picture of a car and post it for sale. When a car is advertised with multiple photos, it indicates that the seller is honest and not hiding any information. Even if I don’t know what I’m looking for in terms of quality, I assume that the product and the seller are of high quality since the seller has provided detailed information. Photos would be difficult to imitate if the seller or the product was flawed in some way.
References:
Froeb, L.M., McCann, B.T., Shor, M., Ward, M.R. (2014) Managerial Economics: A problem solving approach. Third Edition. South-Western Cengage Learning: Mason.
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ReplyDeleteI would surmise that Ebay has evolved over the course of the years to realise that they are not just a virtual auction site but evlolve into a new generation of retailer and have learned who their target audience is. The buyers and sellers have also evolved in the process. Even though the auction format has been successful in attracting a portion of the population looking for deals, many of the users end up getting emotionally attached to a certain auction and end up catching the winner’s curse ”( Froeb, L., McCann, B., Shor, M., & Ward, M., 2014, pg. 218). I have not personally seen a page that warns users how to avoid the “curse”, since it would cut into the percentage sellers earn on their listings, thus discouraging sellers from doing future listings on Ebay.
ReplyDeleteFrom personal experience, Ebay is trying to create dual values by adding [buy it now] option to their seller’s listings. The seller can create a price to consummate the transaction immediately with a premium if a buyer cannot wait. This could be fair value based upon previous auctions, or an arbitrary number. Sophisticated buyers can learn what the personal estimates are of price by looking at the same item being offered simutaneously by different sellers and make a decision based upon other factors, such as shipping rates and delivery dates.
I still think buyer’s curse has been experienced by many of ebay’s users and can continue to effect their future buying decisions. Ebay has recently has made a push for the 14 day money-back guarantee similar to conventional retailers, and it has the effect of allowing buyers to purchase with confidence. Some users will always percieve a buyer’s remorse due to the fact they don’t feel they have all the information to make an optimal decision. From my own personal experince, the Ebay guarantee can have the psychological effect to belay those fears.
Froeb, L., McCann, B., Shor, M., & Ward, M. (2014). Managerial economics: A problem solving approach (3rd ed.). Australia: South-Western Cengage Learning.
This post proves that the information in the textbook about auctions is very accurate. The more information consumers have, the more likely they are to know whether they value the product or not. Photos, in this case, are a very valuable source of information to car buyers. Purchasing a car online without seeing its state is much more high-risk for the buyer, therefore lowering the prices. As the book points out, auctioneers who have information should make it available at oral auctions because it helps to increase prices. In this case, eBay serves very much like an online version of an oral auction. Like the other commenter mentioned, I too have seen the ads that online dating sites that have photos are more likely to lead to dates than people who don’t post their photos. Those sites can be seen as similar to auctions, only the currency is in the form of dates instead of dollars.
ReplyDeleteAny time you make a purchase, whether it is as big as a vehicle or as small as a candy bar, you as a customer base your purchase on as much information that you can gather on the product as you can before making your decision. Ebay is no different. I shop on ebay. My first rule is that I sort according to the items that offer a picture. Any merchandise that does not have a picture gets ousted right away. How can you make a decision without ever actually seeing the product first? The more pictures the better too because it just offers more information that we (the customer) have to base our decision on to purchase or not to purchase.
ReplyDeleteIt is just like the example in our Economics book. The purchaser of a diamond paid top dollar for a diamond with a flaw and therefore asked for a refund. The question then is did the merchandise include the flaw at the time of purchase or was it damaged after the purchase and the buyer is trying to get their money back. If there were more pictures of that diamond, both the seller and the purchaser would have been more protected.
As for vehicles on ebay, I do not understand why anyone would purchase one without actually being able to drive it. It would be a shame to spend a lot of money on what you think is a great car only to have the car turn out to be spotless exterior but no motor or no ignition system (I am far from a mechanic as you can tell). Without pictures of the product, I would not trust any seller enough to purchase it.
Reference: http://www.ebay.com/gds/TOP-5-TIPS-for-SELLING-ITEMS-on-eBAY-auction-/10000000001910734/g.html
My husband is an active ebay user, both as a buyer and a seller. While he has never purchased or sold a vehicle through ebay, I can say that without seeing a lot of pictures of the vehicle, he would not fell confident purchasing a vehicle online without first seeing it in person. It is too easy to put something on the internet and use pictures of another item to represent what you are selling, when it is really not the right item. This is where "buyer beware" comes into play because, as with most auctions, you cannot guarantee, as the buyer, that what you are buying it worth what you are paying for it. What you are valuing the item at could be substantially higher than its worth, or you could actually make out with an item that is worth far more than you expected. There is a lot of risk that can be involved when it comes to auctions and purchasing items untested.
ReplyDeleteI agree with article. The best way to sell anything is with lots and lots of photos. Most people want to see, feel and touch merchandise. The photos give the next best thing and that is the visual. They still cannot touch and feel, but they can imagine touching it. The photos also give the illusion of knowing more about the vehicle as if the photos were telling a story.
ReplyDeleteEbay users know this and sometimes post as many as 20 photos. It is great when they post a story or the history of the vehicle as well.
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I would recommend going one step further: highlighting your defects. I appreciate the systematic photo array which starts head on, goes around the vehicle, under the hood, trunk, dash board and all seats. However, when your description identifies defects (ie: small ding on passenger door, crack in spoiler, etc.), it pays to show a close-up photo of the defect. To me, it demonstrates a forthcoming and a desire (on the part of the seller) to avoid disappointment at delivery.
ReplyDeleteI would have to agree with this. Having bought and sold a few vehicles on eBay and through Craigslist, utilizing a number of photos helps to put the buyer at ease that they are getting what they are bidding on. After getting the car/motorcycle cleaned up as best I can, I photograph every possible angle of the vehicle so the buyer gets the impression that it has been cared for and is in the condition they believe it to be in.
ReplyDeleteThe case of a higher price for items on eBay, particularly vehicles, rising along with number of pictures, certainly pans out. Having more pictures for something as significant as a vehicle allows the potential buyer to make a better decision on its value to the buyer. The seller usually sets a reserve on eBay, representing their perceived value of the vehicle, and once that reserve is met, there is some equilibrium between the market price and the buyer’s perceived value of the vehicle. More pictures create a better balance between the buyer’s information and the seller’s information. A vehicle with one blurry picture of a vehicle being sold with a salvage title means that the vehicle is likely not good for anything other than parts, but a salvage title on a vehicle with pictures showing that it is otherwise sound would give buyers more confidence that they could restore the vehicle and use it. Giving the buyer more information and more valuable information (for example, pictures of the engine, rather than closeups of the upholstery) allows the buyer to raise their perceived value of the vehicle.
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