People who are bidding on eBay in order to get their favorite items are saving a lot of money annually, a new research claims.

Two researchers from Maryland's Robert H. Smith School of Business, Wolfgang Jank and Galit Shmueli, both associate professors of decision and information technologies, have analyzed consumer purchase data from more than 4,500 eBay auctions in 2003.

In 2003, Ravi Bapna, an associate professor at the Indian School of Business, was running Cniper.com, a sniper site that helped the eBay customers to place automatically bids on auctions in the final moments, in order to get the items at the lowest possible price.

The researchers have used the data collected in 2003 to calculate a parameter called “Consumer Surplus”, that in their study defines the difference in the winning price of a sniper-bid eBay auction and the absolute maximum amount the Cniper.com user was prepared to pay.

Classical microeconomic theory uses the notion of consumer surplus as the welfare measure that quantifies benefits to a consumer from an exchange. Alfred Marshall (1936) defined consumer surplus as “the excess of the price which he (a consumer) would be willing to pay rather than go without the thing, over that which he actually does pay…”

“You just can't quantify this for traditional retailers - a store clerk would never get an accurate answer by asking a customer, 'how much were you really willing to pay for this item?' We just pay the prices the retailers demand. But on an auction site like eBay, consumers can dictate how much they're willing to pay," explained Galit Shmueli.

They concluded that during 2003 the Consumer Surplus was on average at least $4 per auction. Quantifying the consumer surplus shows that in 2003, sellers left more than $7 billion on the table in auctions or about 30 per cent of the 24 billion dollars of total merchandise sold through eBay that year.

"Consumer surplus is usually very hard to measure," said study co-author Galit Shmueli. "The problem is that it is hard to ascertain how much a winner or a bidder or a user would have been willing to pay for a certain item."

In their study, called “Consumer Surplus in Online Auctions,” which will be published a forthcoming issue of Information Systems Research journal, the researchers explained they made four assumptions in order to calculate the “Consumer Surplus”.

“Given the nature of our data collection scheme we need to begin with the following four assumptions to estimate consumer surplus. We then conduct a series of robustness checks to validate these assumptions, and where necessary and feasible, adjust the estimates for any potential biases.

1) We assume that bidders are behaving consistent with an independent private value setting,
2) We assume that our data reflect bidders treating the eBay auction mechanism as a sealed-bid second-price auction,
3) We assume that there is no particular selection bias and that the bidder and auction characteristics observed on Cniper are not significantly different from those observed on eBay in general, and
4) We assume the lack of other buying options within or outside eBay,” they wrote.

Also, based on the data collected by Cniper.com in 2005, the researchers said that that the surplus level has grown from a median of $4 per auction to $4.83 and from a total estimate of $7.05 billion to $8.39 billion.

“These high and growing consumer surplus levels are one reason why online auctions are an attractive retail channel for consumers,” the researchers said.