eBay business profits may lie in the price of shipping

New research from the Haas School of Business, part of the University of California, suggests that the key to increased profits for eBay sellers may lie in shipping costs, as well as the price customers pay when they bid for an item.

Haas professor John Morgan, and his colleague, Tanjim Hossain, held 80 online auctions at eBay. The products on offer were XBox video games and newly released CD's.

In the study, the research team varied the bidding prices and shipping charges on identical items to see how consumers reacted. Basic economic theory would suggest that consumers would add the shipping charges and bid price to calculate the total cost of purchasing the item.

However, in this study, they found that lowering the opening bid price while raising shipping charges attracts earlier and more bidders and ultimately leads to higher revenues compared with doing the reverse!

For more on these findings, read the article on the Haas website.