Estimating demand from eBay prices

This paper presents results for identification and estimation of the value distribution from eBay auction prices. The paper presents results for eBay type auctions with independent private values and unobserved participation. It is first shown that the distribution of values is identified from observing the distribution of prices and knowing the distribution of potential bidders. The main identification result presents conditions for which the distribution of values and the distribution of potential bidders are simultaneously identified. Not surprisingly, the intuition is similar to the standard results for identifying demand from observed equilibrium prices. The estimation method suggested by the identification results is used to estimate the value distribution for the “C5” Chevrolet Corvette sold on eBay. The results suggest that a simple OLS model on prices will over estimate the mean value of the item. The estimation results are then used to calculate the optimal reserve price for these cars. The estimated optimal reserves are compared to the actual reserves. Actual hidden reserves are set much higher than actual non-hidden reserves. The evidence suggests sellers set Buy-It-Nows and hidden reserves optimally to account for re-listing opportunities.