Traders Beware the eBay Long Tail

You’ve heard the warnings a dozen times about scammers, spammers, and spanners on eBay, the most famous and infamous of the online auction sites. Now, US researchers have a new phrase, not buyer beware, but caveat mercator, trader beware.

Zhangxi Lin of the Center for Advanced Analytics and Business Intelligence, at Texas Tech University, in Lubbock, Dahui Li of the Labovitz School of Business and Economics, at the University of Minnesota, in Duluth, and Wayne Huang of the Department of MIS, College of Business, at Ohio University, present a new perspective on eBay trading in a forthcoming issue of the International Journal of Electronic Business, (2007, 5, 499-517).

The team found that the distribution of buying and selling reputation on eBay follows a bell-shaped curve once a logarithmic transformation has been applied. This curve implies that reputation changes proportionally over time, which is similar to fluctuations in interest rates and stock prices, Lin told Significant Figures.

“A seller’s total reputation score can indicate the seller’s capacity,” he explains, “So the lognormal distribution of the score mean the seller’s capacity grows proportionally over time.” The lognormal distribution of negative feedback rate implies that the reputation of sellers tends to stay at the same level of good or bad over time. In other words, Lin says, “a seller’s current reputation scores can pretty well tell the likelihood of future performance.”

The team also considered the so-called “80/20 rule”, which is all around us and is commonly known in economics as the “long tail”. Vilfredo Pareto first put the 80/20 phenomena into words saying that 80% of consequences stem from 20% of the causes. It applies equally to marketing phenomena such as search engines results pages as it does to physical science in Bose-Einstein condensates and other atomic behavior. Chris Anderson on the Long Tail blog discusses the true meaning of the 80/20 rule in depth and suggests that a simplistic way of considering Pareto’s words are exemplified by phrases such as, “The 80/20 rule is all around us.

Only 20 percent of major studio films will be hits. The same is true for TV shows, games, and mass-market books - 20 percent all.” It’s that 80 part of the 80/20 that is the long tail. The long tail referring to a distribution unlike the bell curve in which very few are at the top and the vast majority trail away towards zero.

Lin, Li, and Huang saw the long tail in action not only in online transaction volumes in their study of eBay activity but also in the negative feedback scores of traders. In other words, there are a very few sellers selling a lot of lots, and the number of sellers selling fewer and few items declines as a long tail graph with a few sellers, selling a few items, but many, many sellers simply being one-off ebay traders. Similarly, there are simply many many, sellers with one or two negative feedbacks. Again, as you’d expect.

The team also found that most complaints from buyers were not in fact due to online fraud, contrary to many of the media scare stories and hype surrounding eBay. Instead, it turns out that buyers could be more responsible for online disputes than sellers. A negative comment against a seller is not necessarily related to fraud, Lin says. “Unpleasant results can have different ’shades of grey’, reflecting the status of different complaints,” Lin says, “There are many reasons a buyer could be dissatisfied: services (seller’s email response), third party problems, such as delivery.

To assess the risk level associated with a given seller, a buyer must look into more of the details of the seller’s previous negative comments. Conversely, buyers may make genuine mistakes in their online trading, which can also lead to a negative feedback comment. Misreading an ad or auction and sending the wrong shipping address are two common mistakes.
So here are Lin’s top tips for buyers and for sellers alike:

For buyers

• Always check the seller’s reputation carefully and look closely at complaints.
• Read the item information in detail especially if the item description is wordy or ambiguous.
• Don’t be too hasty to post negative feedback, investigate the problem, first and avoid retaliatory negative feedback from the seller.
• Be strategic if you must post a negative comment.
• Read between the lines when checking out a seller’s star rating, such ranking is not perfect.

For sellers

• Provide adequate information about your products because there is a gap between your profit margin and a buyer’s expectations.
• Resolve disputes politely or risk retaliation.
• Deal with buyers as if you are dealing face to face and you will get positive feedback.