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Correcting Measurement Bias in Online Auction Research: A Relative Value Benchmark for Strategic Underpricing
Subject area: Management and Commerce · Area of research: Applied Econometrics and Pricing Strategy
Abstract
Empirical research in e-commerce and online auction dynamics frequently evaluates 'strategic underpricing' using category-level quantile cutoffs (e.g., opening bids in the bottom 10th or 25th percentiles). In this paper, I demonstrate that threshold-based quantile indicators introduce severe measurement error by confounding low-value products with strategically underpriced products. To resolve this measurement bias, I introduce the Relative Underpricing Index (RUI), a continuous metric benchmarked against item-level expected market reference values (Vc). Applying heteroskedasticity-robust (HC3) Ordinary Least Squares (OLS) regressions and structural path mediation models to 628 completed eBay auctions across standard product categories, I show that quantile thresholds yield misclassified, spurious estimates. Under the benchmarked RUI metric, strategic underpricing exhibits a strong, statistically significant negative association with net revenue realization (β = -117.42, p < 0.001). Furthermore, while relative underpricing lowers entry barriers and increases unique bidder participation (α = +5.71, p < 0.001), a formal Sobel mediation test confirms that the resulting indirect revenue boost (+51.18, p < 0.0001) fails to recover the direct revenue loss incurred from opening bid discounts. This study provides a corrected econometric framework for marketplace researchers and warns sellers against relying on naive low opening bids.
Keywords
Strategic Underpricing, Relative Underpricing Index (RUI), Measurement Error, Online Auctions, Mediation Analysis, Econometric Methods.
References
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How to cite this paper
@article{1723071,
author = {Tanishk Garg},
title = {Correcting Measurement Bias in Online Auction Research: A Relative Value Benchmark for Strategic Underpricing},
journal = {Iconic Research And Engineering Journals},
year = {2026},
volume = {10},
number = {3},
pages = {1773-1777},
issn = {2456-8880},
url = {https://www.irejournals.com/formatedpaper/1723071.pdf},
abstract = {Empirical research in e-commerce and online auction dynamics frequently evaluates 'strategic underpricing' using category-level quantile cutoffs (e.g., opening bids in the bottom 10th or 25th percentiles). In this paper, I demonstrate that threshold-based quantile indicators introduce severe measurement error by confounding low-value products with strategically underpriced products. To resolve this measurement bias, I introduce the Relative Underpricing Index (RUI), a continuous metric benchmarked against item-level expected market reference values (Vc). Applying heteroskedasticity-robust (HC3) Ordinary Least Squares (OLS) regressions and structural path mediation models to 628 completed eBay auctions across standard product categories, I show that quantile thresholds yield misclassified, spurious estimates. Under the benchmarked RUI metric, strategic underpricing exhibits a strong, statistically significant negative association with net revenue realization (β = -117.42, p < 0.001). Furthermore, while relative underpricing lowers entry barriers and increases unique bidder participation (α = +5.71, p < 0.001), a formal Sobel mediation test confirms that the resulting indirect revenue boost (+51.18, p < 0.0001) fails to recover the direct revenue loss incurred from opening bid discounts. This study provides a corrected econometric framework for marketplace researchers and warns sellers against relying on naive low opening bids.},
keywords = {Strategic Underpricing, Relative Underpricing Index (RUI), Measurement Error, Online Auctions, Mediation Analysis, Econometric Methods.},
month = {September},
}