New Study By UB Marketing Professor Uncovers Peculiar Online Bidding Behavior

Bidders succumb to "herd behavior," may be missing better buys

Release Date: March 26, 2001

BUFFALO, N.Y. -- Consumers bidding for items on eBay or other online auction sites exhibit a peculiar shopping behavior that actually hinders their ability to get a good deal on a desired item, according to a new study of digital consumer behavior by a University at Buffalo researcher.

Paul Dholakia, assistant professor of marketing in the UB School of Management, analyzed bids placed for thousands of items in different product categories on eBay over a three-week period. He found that consumers tended to gravitate toward items that have one or more existing bids, while ignoring comparable or even superior "unbid-for" items from the same product categories.

Dholakia attributes the phenomenon to a "herd-behavior bias," which means that bidders often succumb to a form of online peer pressure when choosing items to bid on. The behavior occurs, Dholakia explains, because online bidders are unable to thoroughly evaluate an item as they would at an off-line auction or retail environment; nor are they able to assess the trustworthiness of a seller face-to-face.

So, lacking key informational cues about an item, online bidders are more prone to be influenced by the behavior of other bidders: They perceive existing bids to be evidence of an item's quality, making it worthy of their own bid, Dholakia contends.

In doing so, bidders often overlook items that are essentially identical to, or more attractive than, the item they bid on -- even though the unbid-for item could conceivably be purchased at a lower auction price.

"The study illustrates the important role trust plays in the digital marketplace," Dholakia says. "When sellers are individuals without recognizable affiliation, a product's name brand, features and price are less important, and the seller's trustworthiness is a more important consideration."

Dholakia believes that cluttered design of online auction sites also contributes to the herd behavior. "Most online auctions overwhelm bidders with hundreds of choices in a relatively unorganized setting," he says, "so consumers use existing bids as a criterion for screening items and navigating an auction site."

The results of the study, to be published in a forthcoming issue of Marketing Letters, point out the difficulty of building brand equity in the digital marketplace, especially for start-up Internet companies engaged primarily in e-commerce selling, says Dholakia.

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