Content area
Full Text
An executive summary for managers and executive readers can be found at the end of this article.
Since the inception of eBay (originally AuctionWeb) in 1995 online auction sales have increased dramatically. By 2005, for example, online consumer auctions sales had grown to approximately $44 billion. Over the years there has been a steady proliferation in the number of online auction sites (e.g. Ebid.net, eCrater.com, Onlineauction.com, PlunderHere.com, loffer.com, ePier.com, QuiBids.com, HiBidder.com, Buy.com, uBid.com, CQout.com, Webidz.com). With numerous auction sites available to consumers, multiple sellers offering similar items, and with many online retailers offering free or low-cost shipping, the issue of whether or not to charge a shipping fee has become increasingly important for sellers. Power sellers, in particular, have much to gain from implementing effective and profitable pricing strategies.
In order to ensure profitability, a crucial decision for online auction sellers is whether to charge a shipping fee. Although many items are relatively inexpensive to ship, shipping charges for some items can be substantial, and if not passed on to buyers can negate profit margins. Whether it is advantageous for sellers to specify a shipping fee, however, is uncertain. A key issue is whether online auction bidders adjust their offers downward to compensate for shipping fees. If bidders only partially compensate for shipping charges then profits margins increase; however, if bidders overcompensate for shipping charges profit margins decline. The use of shipping fees can also indirectly affect auction prices (i.e. winning bids) via the number of people who enter a particular auction. High shipping fees can discourage potential bidders from entering an auction, resulting in less competition for an item and thus lower auction prices. Free shipping, on the other hand, tends to attract more bidders to an auction, which in turn drives up winning bids. These two factors, together, determine whether it is profitable for online sellers to charge shipping fees. This is an important issue for the numerous individuals and (and small businesses) who derive the majority of their income by selling goods via online auctions. Considering that a study by ACNielsen determined that "approximately 1.3 million sellers around the world use eBay as their primary or secondary source of income" ([27] Newsweek, 2008), the current study is highly relevant.
Given the dramatic...