The effect of competition on eBay

- I estimate the effect of competition (simultaneous auctions) on transacted prices in the eBay marketplace.
- Preliminary analysis suggests that the effect is small and/or insignificant.
- Using instrumental variables, I find that an additional competitor leads to a reduction in transacted prices.
- I find evidence that this is due to the thinning of the bidder market, rather than dynamic bidding.

I examine the effect of competition on eBay Motors. I specify a simple model of auction choice and show that the expected transaction price falls with an increase in the number of competitors. I then test for this effect using data from 5,500 auctions for Chevrolet Corvettes. To address potential endogeneity of the level of competition, I introduce an instrument which takes advantage of the unique features of eBay. Results indicate that an additional competitor leads to a 6% reduction in the final transacted price ($960 for the average car). Further, I provide evidence that this effect is due to the thinning of the bidder market rather than dynamic bidding.