Research using eBay auction data suggests consumers are willing to pay a premium for a good cause. Two professors from the Olin School of Business at Washington University in St. Louis looked at regular auctions on eBay and at auctions run through its "Giving Works" program, where sellers choose to donate part of their earnings to a non-profit of their choosing.
Brian P. McManus, assistant professor of economics, and Daniel Elfenbein, assistant professor of organization and strategy, found that products connected to a charity commanded higher prices than unaffiliated products. Professor McManus said that on average, the charity items have an estimated premium about 5 percent higher than identical items with no connection to a charity.
The results were published in a working paper, "A Greater Price for a Greater Good? The Charity Premium at eBay Giving Works." The research indicated that the little bit extra that people are willing to pay for charity auctions diminishes as the auction item gets more expensive. The researchers said that bidders seemed to have in mind a maximum donation that they were willing to make to a charity. As the auctioned item's price rises, that maximum becomes a smaller percentage of an item's price.
McManus said that the eBay charity premium might be constrained further because bidders determine prices while sellers select the charities. Bidding may be less aggressive if the seller's charity is an unpopular one. The professors said the research results also indicate that there is value in non-profits selling retail items to raise money.
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