Modeling buyer and seller interactions in online auction markets

With the rapid development of information technology and electronic commerce, online auction markets have recently emerged as a hybrid form of market, different from both traditional mass markets and single item auctions. Research in this area is still at an early stage. Most researchers have so far focused mainly on factors internal to a single auction, ignoring dynamic interactions between auctions within a market of multiple competing auctions of similar products. Moreover, principles in economics and auction theory may not apply to online auction markets.;Finally, this study identifies certain hidden patterns and trends that can potentially affect the results of research in online auction markets. First is the effect of the way time periods are defined. Second is the discovery of product lifecycles in precisely defined product markets. The results imply that the online auction market is more complex that generally perceived.;This study develops a conceptual model of online auction markets that captures dynamic interactions between buyers and sellers, treating the entire market as the unit of analysis. Utilizing data collected from over 3000 online auctions, regression analysis is performed to test 4 hypotheses. As predicted by our hypotheses, there is a strong indication that the number of bidders positively affects price, and that end price positively affects the number of items sold in the online auction market. There is a weak indication that the number of items sold negatively affects price. Contrary to our hypothesis, price had a positive effect on the number of bidders. The latter result led to further analysis of the effects of bidding price and number of items sold. The difference between average ending price and average bid price in the market was found to have a positive effect on the number of bidders. The results confirm the effects of external factors on bidders, sellers and price variability.