Dynamic transaction environment and market efficiency of electronic marketplaces

The objective of this paper is to model the online dynamic transaction environment, analyse the behaviour of buyers and sellers, and explore how online dynamic features affect market efficiency in electronic marketplaces. We find that under certain conditions the online dynamic environment can help increase the transaction probability, average used product quality level, market size, and total social welfare in electronic marketplaces. Using eBay's auction data, we empirically test the efficiency of electronic markets by comparing the auction process, outcome, and post-purchase evaluation between new products and used products. Our empirical findings suggest that the electronic marketplaces for used IT products such as Nintendo game consoles and TI calculators are as efficient as the new products. We contribute to the literature by demonstrating the dynamic electronic marketplace environment can improve market efficiency, and show empirical measurement results of market efficiency for electronic marketplaces.

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