Introduction

Electronic commerce continues to grow at an impressive pace despite widely publicized failures by prominent online retailers. According to the Department of Commerce, total retail e-commerce in the United States in 2002 exceeded $45 billion, a 27 percent increase over the previous year. Online auctions are one of the most successful forms of electronic commerce. In 2002, more than 632 million items were listed for sale on the web behemoth eBay alone, a 51 percent increase over the previous year. This generated gross merchandise sales of more than $15 billion.

The rapid development of these markets is usually attributed to three factors. The first is that online auctions provide a less costly way for buyers and sellers on locally thin markets, such as specialized collectibles, to meet. Cohen (2002, p. 45) states, “It would be an exaggeration to say that eBay was built on Beanie Babies, but not by much.” In May 1997, nearly $500,000 worth of Beanie Babies was sold on eBay, totaling 6.6 percent of overall sales. While it may be difficult to find a particular Beanie Baby locally, such as Splash the Whale or Chocolate the Moose, you have a good chance of finding it online. Collectibles such as Beanie Babies, first edition books, Golden Age comics, and Elvis paraphernalia are among the thousands of categories actively traded in online auctions.

A second factor is that online auction sites substitute for more traditional market intermediaries such as specialty dealers in antiques, sports cards, and other collectibles.