Electron Commer Res (2010) 10: 1–25

DOI 10.1007/s10660-010-9044-2

The relationship between website quality, trust and

price premiums at online auctions

Dawn G. Gregg · Steven Walczak

Published online: 24 February 2010

© Springer Science+Business Media, LLC 2010

Abstract This study measures the value of website quality in terms of its impact
on trust, intention to transact and price premiums. Prior research on online auctions
has focused on the use of reputation systems for building trust in online auction ven-
dors and subsequently to generate price premiums. This study examines the extent
to which trust can be induced by improving the quality of online auction listings.
A survey of 701 eBay users is conducted which compares the price premiums of two
nearly identical online auction businesses, one that has online auction listings with
a perceived high quality and the other that has substantially lower perceived quality.
Results of this study indicate that website quality can explain 49% of the variation in
the trust for eBay sellers. In fact, it shows that sellers with good website quality are
all perceived to be equally trustworthy regardless of their eBay reputation; whereas
sellers with poor website quality are not perceived to be trustworthy even if they have
a high eBay reputation score. The results also show that the trust resulting from in-
creased website quality increases intention to transact and results in price premiums
of 12% (on average) for sellers with higher quality listings. Theories from marketing,
economics, and social psychology are used to explain why website quality induces
trust in unknown vendors without providing any concrete evidence regarding the ven-
dor’s past history.

Keywords Trust · Website quality · Reputation · Price premiums · Online auctions

D.G. Gregg () · S. Walczak

University of Colorado Denver, P.O. Box 173364, Campus Box 165, Denver, CO 80217-3364, USA
e-mail: dawn.gregg@ucdenver.edu
S. Walczak
e-mail: steven.walczak@ucdenver.edu
2 D.G. Gregg, S. Walczak

1 Introduction

A company’s website represents their public face to the world. Websites are fre-
quently the first point of contact between a company and their customers [1]. As such,
understanding how a company’s website induces trust in an unknown vendor and ul-
timately influences purchasing behavior is of critical importance to eBusinesses.
Prior research has examined a number of factors that support the development of
trust online. For example researchers studying online auctions have examined the use
of reputation systems to develop trust in unknown vendors and to generate price pre-
miums. This prior research has been inconclusive regarding price premiums associ-
ated with reputation, with some research indicating that reputation systems do impact
price premiums, e.g. [2–6] and other research indicating they do not e.g. [7–9].
Research on website quality has assessed user perceptions about websites in a
particular domain (e.g., [10, 11], online books stores, [12], women’s clothing, [13],
airline industry, [14], legal advice). These studies found that website quality has a sig-
nificant impact on user perceptions of the abilities and trustworthiness of the eBusi-
nesses and on their willingness to transact with the company [15]. This prior website
quality research focused on traditional eBusinesses and it is not clear whether the
benefits of website quality will have as significant an impact in a domain like online
auctions where vendors share a single market space (e.g. eBay) and can only control
the appearance and content of a small portion of a web page.
Auction listing quality varies dramatically at online auction sites. Prior research
has found that even though eBay provides templates to their sellers, poor quality list-
ings are very common, especially for less popular products and new sellers [16]. The
objective of this study is to determine if increasing website quality contributes to the
formation of initial trust in online auction vendors and examines whether this affects
consumers’ intention to transact with the auction vendor and increases the prices they
are willing to pay (price premiums). This study differs from prior research in that it
examines the impact of website quality across a variety of product types and vendor
reputations to determine if website quality can explain some of the variation in trust
and price premiums seen in prior online auction research, e.g. [2–9]. This research
utilized a survey which compared two nearly identical online auction businesses, one
that has online auction listings with a perceived high quality and the other that has
substantially lower perceived quality. Our research will attempt to answer the follow-
ing questions:
(1) Does online auction listing quality affect initial trust for online auction vendors?
(2) Does online auction listing quality affect intention to buy at a particular online
auction?
(3) Does online auction listing quality affect prices received at online auctions?
The rest of the paper is structured as follows: the next section reviews literature
on signaling theory, trust and website quality. The third section includes our research
model and hypotheses about the role of website quality in trust formation, intention
to transact and subsequent eBusiness price premiums. The fourth section presents
a survey that explores the relationship between online auction listing quality, trust,
intention to transact and willingness to pay price premiums. The paper concludes
The relationship between website quality, trust and price premiums 3

with a discussion of the contributions of this research to our understanding of website

quality, online trust formation, and eBusiness price premiums.

2 Literature review

Online auctions represent an increasingly important business sector. Online auctions

have become widespread and the economic value of transactions has become sig-
nificant and is increasing [17–19]. In addition, many small businesses derive their
livelihood from online auctions; therefore, their success is increasingly important for
the economy (there were approximately 82 million active eBay users in 2006, as
compared to approximately 72 million at the end of 2005) [18].
Online auction businesses differ from traditional eBusinesses in several important
ways. First, online auction sites like eBay are very competitive marketplaces, with
many identical products offered for sale by competing vendors at any given time
[20, 21]. Second, online auction vendors share a market place under a larger online
auction site company (e.g. eBay). This limits the ability of online auctions vendors
to differentiate themselves from other vendors operating in the same marketplace.
Third, consumers are responsible for setting the prices they are willing to pay at
online auctions and as such website quality, reputation and trust have the potential
to affect the prices received by vendors [22]. Fourth, online auction sites make it
easy to set-up and run an auction business, this places consumers in a position where
they can believe they are purchasing from a reliable vendor with appropriate business
skills (e.g. shipping), when in fact, they are not [23]. Finally, the vast majority of
transactions at online auctions are conducted between buyers and sellers that have no
prior history or interactions [24] and as a result, online auction consumers rely almost
exclusively on initial trust when deciding whether to bid on or buy a particular item
[25, 26].
The nature of online auction markets makes them especially useful for studying
signaling and trust formation. In most online auctions, the consumer is entirely de-
pendent on the vendor for information related to the product, its quality, and its con-
dition. This information asymmetry [27, 28] makes it very difficult for consumers
to assess product quality before purchase. This characteristic can lead to the classic
lemon problem where a consumer’s inability to assess actual product quality and con-
dition provides an incentive for the vendor to act dishonestly [27]. In these types of
settings, consumers rely on a variety of signals to allow them to distinguish trustwor-
thy vendors from less trustworthy ones. Prior research has shown that in uncertain
environments, like online auctions, trust is especially important and is needed before
a consumer will be willing to engage in a transaction [23, 29–35].

2.1 Signaling theory

There are too many competitors on the Web for deep evaluation of most websites,
thus causing people to process Web information in superficial ways [36]. In these sit-
uations, consumers often use inferences in the decision making process [37]. Positive
4 D.G. Gregg, S. Walczak

or negative impressions of a business are elicited quickly upon exposure to the web-
site. These impressions can be used as cues that guide perceptions of risks associated
with various choice options [38].
Research in consumer psychology has found that consumer judgment is often
based on incomplete or limited knowledge of the relevant information [37]. In en-
vironments with incomplete information, consumers rely on strategic or “costly” sig-
nals provided by firms to evaluate the ability of a firm to produce (and deliver) quality
products [39]. Signaling theory in information economics [5] states that in situations
where there is information asymmetry, a signal is an action of the vendor that credibly
relays information about unobservable product (or company) quality to the consumer
[40]. The more difficult it is for consumers to assess quality prior to purchase, the
more likely they are to rely on costly signals to form expectations about quality [37,
41].
Costly quality signals have been studied for online auctions. The main costly sig-
nal studied in prior research is the use of reputation systems to provide a meaningful
history for sellers [2–6]. Reputation systems are systems that collect, distribute, and
aggregate feedback about participants’ past behavior [24]. Reputation system sig-
nals are costly because they require vendors to demonstrate their quality to numerous
consumers before they can accumulate enough positive feedback to signal they are
a quality vendor in the marketplace. Other costly quality signals studied for online
auctions include setting a reserve price [7, 42].

2.2 Trust

Trust is an important construct whenever two parties engage in a transaction and is

especially important for eCommerce transactions [43]. Early research associated trust
as an individual’s expressions of confidence in others’ intentions and motives [9, 44,
45]. More recently, trust has been defined as an individual’s confidence in another’s
conduct, when the individual is in a position of vulnerability or cannot monitor or
control the other party [46–48].
Theoretical models of trust in online environments provided an understanding of
the factors that promote the different components of trust between customers and
eCommerce companies [49–52]. There are two major antecedents for trust in con-
sumer electronic shopping: trust in the Internet merchant and trust in the Internet
shopping medium as a whole [56, 96]. In the context of online auctions, this maps to
trust in the individual online auction vendor and trust in the online auction provider
site (e.g. eBay). Institution-based trust provides mechanisms that allow consumers
to trust the marketplace [53, 54]. For example, eBay provides registration of auc-
tion sellers, policies regarding the delivery of goods and reputation systems, which
enables consumers to act in anticipation of a successful future endeavor [55].
Trust relationships require two parties that rely on each other for mutual benefit:
the trustor (e.g. online consumers) and the trustee (e.g. online vendors). Trust also
requires that there is some risk that the trustee will not behave as expected (due to
the information asymmetry inherent in online transactions). Mayer and Davis [48]
have proposed a generic typology of trust founded in theories from social psychology
and based on extensive review of the trust literature. This typology suggests that
The relationship between website quality, trust and price premiums 5

perceptions of an online vendor’s overall trustworthiness are based on three primary

trust components: ability, integrity, and benevolence [48]:
Often online customers are reluctant to buy online due to their distrust of the se-
curity of online shopping and their concerns about privacy regarding personal infor-
mation collected online [16]. However, studies have found that increasing trust can
improve customer attitudes towards a company and customers are more likely to buy
from a company they trust [56].

2.3 Website quality

Website quality can be seen as the attributes of a website that contribute to its use-
fulness to consumers. Prior website quality research has identified numerous website
quality dimensions, including information quality, ease-of-use, usability, aesthetics,
trust building technologies and emotional appeal [10, 15, 42, 57–65].
A number of researchers examining the impact of website quality attributes on
user perceptions have found that website quality can significantly impact trust in
online merchants [29, 53, 54, 66–70]. Other studies have found perceived website
quality to have a significant positive relationship with initial trust for the company
[14, 43, 71]. One study has assessed the use of website quality to signal company
trustworthiness to users of an online bookstore. This study found that information
quality was significant to trust for both new and repeat bookstore customers [11]. The
researchers hypothesized that since the bookstore sold more than 1 million different
books and maintained 20 information items about each book, that the information
quality signal provided by the online bookstore represented a “costly signal” that
would be difficult to replicate by bad vendors. The researchers suggested that the
cost of the information quality signal was the primary reason consumers could infer
the trustworthiness of the online vendor from the information quality of the website
[11].
Online auction businesses differ from the traditional businesses examined in prior
research in that the website quality attributes of typical high quality online auction
listings are easy to produce. The perspective of mainstream signaling theory is that
these signals should not be effective because the cost of producing the signal is not
high enough to prevent low quality competitors from emulating it [11, 72]. However,
researchers have also found that less costly signals can be effective, even when there
is no real penalty for lying [73]. It has been shown that low cost signals can create a
credible equilibrium if the parties have at least some interests in common [74]. Thus,
less costly signals work in environments where there is enough common interest in-
formation sharing to be mutually beneficial.
This study assesses whether vendors can improve their website quality to send a
low cost signal about the quality of their goods and their level of service. In this situ-
ation, online auction vendors signal consumers that they possess appropriate business
skills to successfully complete transactions by presenting themselves as professional
vendors and providing information that allows consumers to assess their products and
business standards (e.g. additional product information, shipping policies and return
procedures). Although these signals are not costly and can easily be replicated, they
are likely to be effective for two reasons. First, both sides benefit from the signal
since both are interested in making a successful sale. Second, since the vast majority
6 D.G. Gregg, S. Walczak

of online auctions end happily [23], the signals are on average perceived to be honest,
and thus, are reinforced in the minds of buyers who use them.

3 Research model and hypotheses

Establishing trust between unfamiliar parties (initial trust) is critical in all eBusiness
environments. For Web-based businesses consumers rarely have direct contact with
any sales people and instead depend on the information in a company’s Web inter-
face to form their expectations of how much to trust the company [75]. Therefore, a
consumer’s trust in Web-based business may rely directly on the store’s Web inter-
face, with the perceived quality of the interface acting as a signal to consumers about
unobservable product or company quality [76, 77].
Several studies have identified attributes of website quality that aid in the for-
mation of initial trust between parties in environments like online auctions where
consumers and vendors have no prior interactions or experience [53, 54, 68]. In fact,
McKnight et. al. [68] found that perceptions of website quality are the most signifi-
cant factor predicting trust in a Web vendor. Therefore, it is reasonable to expect that
website quality will also play an important role in the development of initial trust in
an online auction merchant, resulting in the first research hypothesis:
H1: Higher website quality results in higher trust in online auction vendors.
Research on the development of trust in online environments suggests that will-
ingness to buy from unknown vendors (e.g. online auction vendors with whom you
have had no prior transactions) is contingent on the vendor’s ability to build initial
trust in potential consumers [53, 54, 68]. This research hypothesizes that the pres-
ence of trusting beliefs about an online vendor results in corresponding trusting in-
tentions [53, 56]. Researchers investigating trust in online e-commerce contexts have
found that these trusting intentions represent the consumer’s willingness to make pur-
chases from the online vendor [32, 54]. Online auction consumers generally have a
choice between multiple vendors when making a purchase. When consumers do have
a choice between alternate online auction vendors, this prior research suggests that
they will have increased willingness to transact with vendors that appear more trust-
worthy.
Exchange theory proposes that individuals try to avoid exchange relationships that
are less likely to be successful [98]. Since website quality can be used to relay infor-
mation about unobservable product or company quality to the consumer [76], ex-
change theory suggests that increasing website quality will increase a consumer’s
intentions for making purchases from online auction vendors with higher quality list-
ings. This is supported by prior website quality research which has found that the
website quality does impact the purchase intentions of consumers [15]. Thus, it is
likely that both website quality and trust will play an important role in increasing
consumer intention for purchasing from online auction vendors:
H2A: Higher website quality results in an increased intention for purchasing from
an online auction vendor.
The relationship between website quality, trust and price premiums 7

Fig. 1 Research model

H2B: Increased trust results in an increased intention for purchasing from an online
auction vendor.
Increasing trust in a vendor reflects an increased certainty on the part of consumers
that a purchase will be successful. Economic theory suggests that price premiums (or
above market returns) are justified in situations where vendors provide a higher qual-
ity product or service [78]. For the purposes of this research price premiums are the
prices a vendor with a high quality listing receives over a similar vendor with a low
quality listing. Prior online auction research has shown that a poor online auction
reputation can negatively influence the price an auction item receives [2–6]. In this
domain, price premiums help compensate preferred vendors for reducing transaction
risks [40]. Prior research has shown that superior quality does command a higher
price and that the price-quality correlation increases with information [79]. Since in-
creased website quality improves the quality of information available for consumer
decision-making, it should generate price differences between vendors with high
quality auction listings and vendors with lower quality auction listings. Marketing
literature also suggests that overall intention for a firm or a brand may induce price
premiums [40, 80]. Thus, it is likely that both website quality and intention to transact
will play an important role in generating price premiums:
H3A: Higher website quality results in price premiums.
H3B: Increased intention for transacting with a vendor results in price premiums.
The proposed research model for this study is presented in Fig. 1

4 Methods

In order to test the research hypotheses a field survey compares two online auction
listings, one that exhibits most of the website quality attributes identified in prior
literature and one which does not. 701 experienced auction participants are surveyed
to determine if the differences in listing quality changes their trust in the vendor,
creates an intention for transacting with a vendor, and if it changes the price they are
willing to pay for the product in question.

4.1 Auction listing design

The survey utilized two auction listing styles mirroring the two extremes of auction
listing qualities seen in actual eBay auction listings. One hundred actual eBay auc-
tion listings were reviewed and categorized into high quality, average quality and low
8 D.G. Gregg, S. Walczak

Table 1 Listing statistics

Listing quality Number of listings Range of eBay ratings
(n = 100)

High 28 12 to 87,547
Medium 33 6 to 2,691
Low 39 2 to 1,395

quality listing groups. The number of listings in each group and the range of seller
ratings responsible for creating the listings are shown in Table 1. The high and low
quality listings were reviewed and the common characteristics were synthesized into
the auction listings styles used for this study. The high quality listings include actual
product descriptions, terms of sale, and customer service policies found in several of
the better listings identified during the sorting process. In addition, attributes related
to the organization of the data and to the attractiveness of the listings mimicked at-
tributes found in many of the better listings. Similarly, the low quality listings are
consistent with the poorer listings found on eBay. They have minimal product infor-
mation, no sales or service polices, and no aesthetic features (other than a product
photo). Samples of the high quality listing style and the low quality listing style are
shown in Appendix A. The user name associated with the high quality listing style is
“collegiatestores” and the user name for the low quality listing style is “no_pro2003”.

4.2 Survey design

Trust is an ongoing area of interest for many information systems researchers and as
such, several trust instruments have been developed and validated [50, 56, 81, 82].
The various previously developed surveys were analyzed and items appropriate for
online auctions were borrowed. Our survey attempts to measure individual trust in on-
line firms including questions on the three core dimensions of trust, ability, integrity
and benevolence [56] plus questions related to intention to transact (from [32]). The
intention to transact questions were modified to reflect the choice online auction buy-
ers make between vendors. The trust/intention scale is further supplemented with
website quality items [57, 63]. Since the survey asks questions about online auction
listings presented in the format used by eBay, the site ease-of-use (e.g. navigation)
and security attributes cannot be controlled by an individual vendor (they are con-
trolled by eBay and thus were identical for both vendors). Thus, the website quality
questions from prior surveys were restricted to questions related to the attributes that
can be controlled by individual vendors when designing their auction listings. These
attributes included questions for product information, listing aesthetics, and policies
provided by the vendor. The survey also included price premium questions [2] to eval-
uate the extent to which buyers are willing to pay more to purchase from a preferred
vendor. The final survey, after refinement described below, is shown in Table 2.

4.3 Instrument pretests and refinement

Two survey pretests were conducted before the main empirical study to enhance the
content validity of the proposed survey items [35, 83]. The first survey pretest was
The relationship between website quality, trust and price premiums 9

Table 2 Trust and intention to transact survey questions

Substratum Item Source

Web Information WQ1: The information on the collegiatestore’s Loiacono et. al. [63]
Quality Quality (no_pro2003’s) listing is pretty much what I need to
carry out my tasks.
WQ2: The information within the collegiatestore’s Loiacono et. al. [63]
(no_pro2003’s) listing is easy to read.
WQ3: Collegiatestore’s (no_pro2003’s) listing con- Aladwani & Palvia
tains accurate information. [57]
Web Design WQ4: Collegiatestore’s (no_pro2003’s) listing dis- Loiacono et. al. [63]
plays visually pleasing design.
WQ5: Collegiatestore’s (no_pro2003’s) listing has a New Item
high quality professional appearance.
Trust Integrity I1: Collegiatestores (no_pro2003) will be fair in its Bhattacherjee [56]
conduct of customer transactions.
I2: Collegiatestore (no_pro2003) will deliver a prod- Ba & Pavlou
uct that matches the posted description. 2002 [2]
Ability A1: Collegiatestores (no_pro2003) has the skills and Jarvenpaa [37]
expertise to perform transactions in an expected man- Bhattacherjee [56]
ner.
A2: Collegiatestore (no_pro2003) has the ability to Jarvenpaa [37]
meet most customer needs. Bhattacherjee [56]
Benevolence B1: Collegiatestores (no_pro2003) is not likely to Bhattacherjee [56]
make good faith efforts to address customer con-
cerns.
B2: Collegiatestore (no_pro2003) is likely to be open Bhattacherjee [56]
and receptive to customer needs.
Overall OT: Overall, collegiatestores (no_pro2003) is trust- Jarvenpaa [39],
worthy. Bhattacherjee [56]
Intention to transact Pr1b : I am inclined to purchase a product from colle- Jarvenpaa [37],
giatestores (no_pro2003). Bhattacherjee [56]
(adapted)
Pr2b : If collegiatestore (no_pro2003) was selling a Jarvenpaa [37],
product I was interested in I would bid on a product Bhattacherjee [56]
from collegiatestore (no_pro2003). (adapted)
Pr3: I would prefer purchasing from collegiatestore New Item
(no_pro2003) than no_pro2003 (collegiatestore).
Price Premiuma PP1b : If you wanted to bid on this product from col- Ba & Pavlou [2]
legiatestore (no_pro2003), what is the maximum bid
you would be willing to submit to win this auction?
(Retail Price: $XX.XX)
PP2: If you were interested in purchasing this prod- New Item
uct, how much more (or less) would you be willing
to pay to purchase from collegiatestore (no_pro2003)
instead of no_pro2003 (collegiatestore)?

a Price Premium was recorded as a percentage of the list price

b Measured as the increase (or decrease) in intention/premium between the low and high quality vendor
10 D.G. Gregg, S. Walczak

given to a group of 42 graduate and undergraduate students. The survey asked the
subjects to view the sample listings for the two online auction listing styles (a high
and a low quality listing, samples of which are shown in Appendix A). They were then
asked to indicate to what extent they agreed with 22 different statements about Web
page quality, trust and intention to transact for each of the listings. A second survey
pretest was then performed using 205 actual eBay users. In addition to answering
questions about website quality, trust, intention to transact and price premiums for
the two listing styles, the actual eBay users were allowed to comment on the survey
design.
The survey pretests allowed us to verify that users did perceive a difference in the
quality of the two listing styles (in Appendix A). It also allowed us to refine the sur-
vey instrument. The goal was to improve the validity of the final survey by clarifying
or eliminating problematic questions and by adding additional questions to improve
the reliability of specific factors. Reliability estimates for the pretest scale items sug-
gested redundancy in the items used to measure website quality and too few items
for intention to transact and price premiums. Thus, several website quality questions
were eliminated or combined. For example, a question about the availability of con-
tact information was removed because eBay provides a mechanism to contact all
sellers and, thus it was not a differentiating factor between the two vendors. Another
question about the subjects overall perception of the website quality was added to
synthesize several website quality questions. We also added a third intention to trans-
act question, a second price premium question (see the “New Items” in Table 2).
The resulting instrument contained 17 items to measure the dimensions of web-
site quality, trust, intention, and price premiums shown in Fig. 1. Survey participants
were asked each question two times, once for the vendor with high quality listings
and once for the vendor with low quality listings. The question sets for the different
vendors were presented in random order. A seven-point Likert-type scale with an-
chors 1 = strongly disagree to 7 = strongly agree was used for website quality, trust
and intention to transact questions. The price premium questions were broken into
seven price ranges where 7 was the highest price range and 1 was the lowest. Ques-
tions about demographic characteristics of the respondents were also included in the
final survey.
The comments from the eBay pretest subjects made it clear that the impact of
website quality on trust, intention to transact and price premiums could vary depend-
ing on the reputation of the seller and the type of product being sold. In order to
minimize bias in the survey responses, subjects were randomly presented with seller
profiles containing one of three different reputation profiles and auction listings for
one of eight different products (for 24 different treatment groups). The reputation
scores were for a new vendor (rating = 5 and no negative feedback), an average ven-
dor (rating = 100 with 99% positive feedback); and a relatively experienced vendor
(rating = 1000 with 99% positive feedback). The prior feedback (past comments left
by buyers) for both vendors were kept virtually identical so as to eliminate the pos-
sibility that prior feedback would influence the perceptions of survey participants.
Very high feedback scores were not evaluated because it is much less likely that a
vendor with a very high feedback score would have an extremely low quality listing
style. The eight products included new and used versions of products ranging in price
The relationship between website quality, trust and price premiums 11

between $20 and $200. The products selected were among the most popular product
types sold on eBay to appeal to a majority of respondents (cinematic DVDs, Jump
Drives, Cameras and IPod players).

4.4 Analyses procedures

For the main survey, 99,769 email addresses were gathered from online auction list-
ings and about me pages posted at the eBay online auction site. Participants were
randomly selected from the 70,266 of these users that had a reputation score of at
least 10, indicating they had experience either buying or selling on eBay. Users with
at least minimal experience were selected because it was anticipated that their ex-
perience with the eBay online auction site would enable them to better focus on
understanding the unique characteristics of the online auction listings as opposed
to focusing on the design of the eBay site, which was the same in both listings. An
email message inviting participation in the study was sent to potential participants
along with a web address where the field survey could be accessed. Subjects were
randomly assigned to one of the seller reputation type groups (5/100%, 100/99% or
1000/99%) and the order in which the seller profiles were presented (high quality vs.
low quality) was randomized. Respondents were offered a chance to win a $100 prize
for completing the survey. The decision to access the survey address, complete, and
send the questionnaire was taken as voluntary consent. Responses were anonymous.
A total of 15,310 email invitations were sent (approximately 650 for each of 24
treatment groups) and usable responses were received from 701 eBay users. Since
each respondent contributed observations for both the low and high quality listing
styles, 1402 observations were available for analysis. The response rate was 4.6%
(based on emails sent). However, the actual response rate was likely higher. Since the
survey was sent as an unsolicited bulk email to eBay participants it is likely that many
content-based spam-filtering programs eliminated the message before it ever reached
the intended recipient. Current industry data suggests that spam filters currently pro-
tect 65% of email users and these filters block 90% of unsolicited bulk mail [84, 85].
Thus, less than half of the survey solicitations may have reached their intended recip-
ients, suggesting that the actual response rate was closer to 11% based on the inferred
number of emails received. This low response rate may be at least partially attributed
to two factors. First, a customer service campaign started by eBay several months
before the survey discouraged eBay members from responding to spam. Second, in
order to avoid being perceived as a spam emailer, only a single email message was
sent to each potential participant. A Wave analysis [86] was conducted to assess non-
response bias and no statistically significant differences were found between early
and late responders. Sample demographics are shown in Table 3.
This investigation used confirmatory factor analysis to confirm the hypothesized
factor structure. Structural equation modeling (SEM) was specifically chosen for this
investigation because of its capacity to handle complex models with observed and
latent variables, measurement error, and the ability to estimate the values of all vari-
ables in a network. The ability of SEM to isolate measurement error in observed
variables reveals true variance and its related effects on variables in a model. Figure 2
shows the website quality, trust, intention and price premium model tested using the
confirmatory factor analysis.
12 D.G. Gregg, S. Walczak

Table 3 Demographic statistics

Variable Range Percentagea (n = 701)

eBay Rating <100 15%

101–500 29%
501–1000 15%
>1000 40%
Length of time on eBay <1 year 12%
on eBay
1–5 years 55%
>5 years 33%
Gender M 56%
F 41%
Age ≤22 4%
23–40 29%
41–64 39%
65 & older 1%
Education High school 15%
Some college 33%
a Percentages may not add to Bachelors 30%
100 due to missing demographic Graduate 21%
data

Fig. 2 Initial structural equation model

Before conducting the confirmatory factor analyses, multivariate skewness and

kurtosis statistics were computed for the joint distribution of the 17 observed vari-
ables to check whether the distributional assumptions of maximum likelihood esti-
mation were met. The kurtosis statistics range between 0.063 and −1.625, indicating
very moderate non-normality. Since they fell within the recommended −2 to +2
range no data transformations were required.
The data set was randomly split in two. The confirmatory factor analysis was per-
formed on the initial sample of 701 randomly selected observations with a sample of
The relationship between website quality, trust and price premiums 13

the 701 observations held out for further scale validation. AMOS 5.0 maximum like-
lihood estimation was used for the analysis. The fit of the overall model was tested
with the first half of the data. Then, the measurement properties of each factor were
tested and changes were made, when needed, to improve the validity of the scales.
The correspondence between theoretical specification and empirical data in a con-
firmatory factor analysis model is assessed using χ 2 /df as well as five fit indices:
the root mean square error of approximation (RMSEA), the Goodness-of-Fit Index
(GFI), the Normed Fit Index (NFI), the Non-normed Fit Index (NNFI), and Compar-
ative Fit Index (CFI). It is generally recognized that observed values for χ 2 /df ≤ 3
show good model fit with χ 2 /df ≤ 5 sometimes considered a reasonable fit [87, 88].
Values for GFI, CFI, NFI and NNFI > 0.9 are needed to support acceptable model
fit while values exceeding 0.95 generally indicate the model fit is very good [89, 90].
RMSEA values larger than 0.1 are indicative of poor-fitting models, values in the
range of 0.05 to 0.08 are indicative of fair fit, and values less than 0.05 are indicative
of close fit [88, 91].
Initial testing of the SEM in Fig. 2 shows that the model does not fit well according
to several of the descriptive measures of fit; χ 2 /df is 9.9, GFI, and NNFI are less
than 0.9 and RMSEA is greater than 0.10. In addition, the factor loading of the second
website quality parameter is 0.41, which is below established thresholds [92, 93].
This is possibly because both online auction listings were “easy to read” and thus this
question was not useful for differentiating between the high and low quality listings.
As a result, the second website quality question was dropped from the final model.
Finally, four of the model’s parameters have multiple measurements: Web design,
Ability, Integrity, and Benevolence. Since these data come from the same research
participants, it is likely that there is shared variance between the pairs of variables
that is not captured by the initial model. The final model correlates the residuals of
these four sets of variables to incorporate these sets of shared variance into the model.

5 Results

Confirmatory factor analysis was used to test the revised model using the hold-out
sample of 701 observations. The standardized parameter estimates for the revised
website quality, trust, intention, and price premium model are shown in Fig. 3. Con-
vergent validity and unidimensionality, reliability, and discriminant validity were
assessed to ensure this revised model meets reliability and validity criteria recom-
mended in the literature [35, 89].
Convergent validity and unidimensionality ensures that all items measure a sin-
gle underlying construct [94]. Analysis of the revised model shows significantly im-
proved fit over the original model with χ 2 reduced from 1130 to 517, reducing χ 2 /df
to 5.49 (much closer to the recommended range). The GFI, NFI, NNFI, and CFI for
the revised factor structure were 0.917, 0.957, 0.954, and 0.964, respectively, indicat-
ing the theorized model fit well with the observed data. The value of RMSEA was
0.080, also indicating acceptable fit. In addition, all but one of the standardized item
loadings exceeded recommended loading of 0.707 [93], indicating that more than half
of the variance is captured by the latent construct. The remaining factor (WQ3) had a
14 D.G. Gregg, S. Walczak

Fig. 3 Website quality, trust, intention to transact and price premium standardized parameter estimates

Table 4 Estimates of cronbach

α and variance explained Dimension # Items Cronbach α AVE

Website Quality 4 0.89 0.67

Trust 7 0.96 0.76
Intention to Transact 3 0.94 0.82
Price Premium 2 0.78 0.63

standardized loading of 0.67, slightly below the desired level, but still well above the
more lenient recommended minimum loading of 0.55 that requires an item explain
30% of the variance in a variable [92]. Thus, it can be concluded that the revised
website quality, trust, intention, and price premium model exhibit properties of both
convergent validity and unidimensionality.
The internal consistency of each dimension was assessed by examining estimates
of Cronbach α and of the average variance extracted (AVE) [94]. Cronbach α reflects
the degree to which the construct is represented by the indicators. The AVE of the
construct reflects the extent to which the indicators are truly representative of the
construct. The results, as reported in Table 4, show that all constructs exceed the
recommended value of 0.7 for Cronbach α and the recommended value of 0.50 for
AVE [94].
Discriminant validity reflects the extent to which the measures for each dimension
are distinctively different from each other. The discriminant validity model-testing
sequence requires that the variance of pairs of factors be constrained to be equal,
signifying the two factors are equivalent. The constrained models are then compared
to the model with distinct factors to see if applying the constraint reduces the overall
model fit. If a chi-square difference test shows significant differences between the two
models then discriminant validity is supported [95]. The results in Table 5 show all
The relationship between website quality, trust and price premiums 15

Table 5 Chi-square difference

tests four factor vs. constrained Model χ 2 p
models Intention = Price 78.65 < 0.001
Trust = Intention 31.219 < 0.001
Trust = Price 241.806 < 0.001

three chi-square differences are significant at the p < 0.001 level, indicating strong
support for discriminant validity.
All the validation tests undertaken indicate that the structural model meets overall
fitness requirements. Thus, it is reasonable to test whether the hypothesized rela-
tionships between the factors exist. The parameter estimates for the website quality,
trust, intention, and price premium factor structure shown in Fig. 3, show evidence in
support for four of the hypotheses. The direction and significance for four of the five
parameter estimates were consistent with theory (p < 0.001). There is a high path co-
efficient between website quality and trust (β = 0.70) indicating that website quality
explains 49% of the variation in the trust variable (R 2 ), providing support for hy-
pothesis H1. This is consistent with linkages between website quality and trust from
prior studies of eCommerce sites [10, 12, 68], providing support for the nomological
validity of these constructs.
Both website quality and trust were significant predictors of users’ intention for a
specific online auction vendor (β = 0.74 and 0.19, respectively), which collectively
explained 79% of the variance in intention to transact, supporting hypotheses 2A and
2B. Vendor intention was also a significant predictor of price premiums (β = 0.87),
and explained 74% of the variance in price premiums, supporting hypothesis 3B.
However, the path directly from website quality to price premiums was not significant
(p > 0.10), indicating that website quality does not lead directly to price premiums,
causing us to reject hypothesis 3A. Instead, website quality’s indirect effect on price
premiums is fully mediated by intention to transact and trust (indirect effect = 0.77
and 0.11, respectively). This research suggests that increasing website quality in-
creases trust in the vendor (hypothesis 1), creating a intention for purchasing from
the higher quality vendors (hypotheses 2A and 2B), this intention for transacting with
higher quality vendors can lead to price premiums if there are lower quality vendors
in the market place (hypothesis 3B).
Interestingly, when asked the price they would be willing to pay each vendor for
the item in question subjects chose prices that were 12% higher for the vendor with
high quality listings than for the vendor with low quality listings (on average). How-
ever, when the subjects were asked directly how much more or less they would pay
for the product from the two vendors they said they would be willing to pay 5%
more to buy the product from the vendor with higher quality listings (on average)
and would pay 9% less to buy the product from the low quality vendor. This suggests
that the price selection strategy for respondents may have been relative to a baseline
“average” price instead of exclusively relative to the other seller in the study (e.g. I
would pay 5% more to buy from the seller with the high quality listing relative to all
other sellers I have seen).
A final analysis was conducted to determine whether the differences in responses
for high and low website quality were seen across all treatment conditions. Appen-
dix B contains a comparison of the mean values for each of the survey questions
16 D.G. Gregg, S. Walczak

separated based on seller reputation, product, and new/used products. The tables in
Appendix B confirm that website quality has a significant impact on trust, intention,
and price premiums for all sellers and products examined in this study (p < 0.001).

6 Discussion and conclusions

This study examines the impact of website quality for online auction vendors. Our
hypotheses are largely supported and suggest that website quality has a significant
impact in the online auction domain. The results indicate that increased website qual-
ity contributes to increased trust in the online auction vendor, an intention for pur-
chasing from online auction vendors with higher quality listings and a willingness to
pay price premiums. This research confirms findings by prior researchers that trust is
an important factor in inducing willingness to buy from unknown vendors [32, 56]
and confirms the existence of price premiums for more trustworthy vendors [1, 3–6].
Consistent with signaling theory [77], this research suggests that the ability of
a vendor to design an appropriate auction listing signals potential consumers that
the vendor also has the other abilities necessary to be a successful online auction
vendor. This has important implications in the online environment where vendors
must have the specific abilities to complete transactions successfully (e.g. process
payments, package the item appropriately, and ship in a timely fashion). Interestingly,
trust theory suggests that ability is highly domain specific and abilities from one
domain (e.g. generating a quality auction listing) should not necessarily transfer to
another domain (e.g. ability to pack and ship a product in a timely manner) [96]. Of
the survey respondents that posted additional comments about the two vendors, 35%
commented that they believed the high quality vendor to be more professional than
the low quality vendor, indicating that in the online auction environment at least that
the ability to design a high quality listing is transferable to other unforeseen qualities
of online auction vendors.
The difference in the magnitude of the price premiums for the high quality vendors
and the price discount for the low quality vendors suggests that negative deviations
from a perceived quality standard may have a stronger negative impact than the posi-
tive impact provided by good website quality, resulting in deeper discounts for sellers
with poor quality listings. This is consistent with prior research that has found that
people react more strongly to negative situations than they do to positive situations
[65]. Several of the survey respondents clearly indicated that a poor quality Web list-
ing signaled that the vendor was less likely to have the abilities they expected from
an online auction vendor, for example “. . . I know I would pay more with the colle-
giatestores than no_pro2003 but I wouldn’t really want to! I would prefer the cheaper
price with no_pro2003 but in the back of my mind I still would be wondering if they
will follow through on shipping the item.”
Finally, results of this study suggest that website quality is important to the for-
mation of trust, intention to transact and price premiums in both new and more estab-
lished businesses and across a wide range of products. This is a result not addressed
in prior literature and represents a contribution to research on both website quality
and online auctions.
The relationship between website quality, trust and price premiums 17

7 Implications

Prior research on signaling theory has focused on costly signals (e.g. reputation sys-
tems, brand name, price, warranties etc.) to signal product and service quality to
consumers [2, 11]. This research extended this theory to show that less costly sig-
nals can also be used to relay information about unobservable vendor quality in an
environment where there is information asymmetry producing uncertainty about the
products and services a vendor will provide. Researchers studying signaling have
suggested that costly signals are required to signal unobservable product and service
quality to consumers because cost is required to assure the credibility of the signal
[11, 40, 72]. The results of our study suggest that less costly signals can also be ef-
fective in an environment where buyers and sellers share a common interest (making
a successful sale) and where the majority of transactions are completed successfully.
Prior research into trust in the online environment has suggested that appropriate
trust building mechanisms are necessary for creating initial trust in unknown ven-
dors [2, 31, 97]. It has found that increasing trust through accreditation mechanism
and feedback systems reduce uncertainty increasing average prices of items [2, 98].
However, other research calls the reliability of these costly signals into question sug-
gesting that feedback systems are not an effective mechanism for assessing the trust-
worthiness of online auction vendors [23, 99]. Our research suggests that website
quality is perhaps an equally important mechanism for building initial trust online.
Results of this study show that the quality of an individual web listing can be used
to establish a favorable perception of an online auction vendor and provides evidence
that trust can be built solely on visual and informational cues without knowledge of
the vendor’s history, familiarity with the vendor, or any personal interactions. One
implication of this research is that future researchers studying trust formation and its
impact on price premiums at online auctions will need to control for website quality
in addition to vendor reputation and product type.
The results of the study have some important implications concerning both ven-
dors in on-line auctions and perhaps other online retailers. One important insight
that comes out of this research is that it is indeed possible to create trust in online
auction vendors without prior interactions or reputation systems. The finding that
website quality does affect closing prices suggests that it is important for online auc-
tion vendors to present themselves and their products in a professional manner (e.g.
by choosing a professional color scheme, presenting content in an organized fash-
ion, and providing clear shipping and return policies). Although several of the survey
respondents indicated that professionalism is now expected of all online auction ven-
dors (e.g. “. . . on eBay, vendors are expected to be professional even if they only sell
what they have at home and are no longer using”). Other respondents did not feel
improving website quality was important. One respondent commented, “Design has
some influence on the selling price, but in real-world business the profit rarely justi-
fies spending time on design.” This opinion was not supported by our research.

8 Limitations

One limitation of the study is that the listings with respect to quality were constructed
to be maximally different as opposed to realistically portraying the type of listing a
18 D.G. Gregg, S. Walczak

vendor with a particular reputation might have. For example, it is less likely that a
new vendor would have a high quality listing, complete with return policies. This
professional listing style is more consistent with established sellers. Many vendors
begin their online auctions with a somewhat simpler listing style and then learn that
improving their listing style improves their outcomes. For example, one survey re-
spondent commented that “when we redid our auctions to provide a more profes-
sional look, sales were greatly affected. Our sales data clearly shows a link between
the perceived professionalism of the vendor and the selling price of items.” It is also
very unlikely that a vendor with an extremely high rating would continue to have a
very low quality listing style. One respondent that viewed auctions for the vendor
with 1000 positive feedback comments said that “no_pro2003’s auction is the kind
of auction that is made by a very novice user . . . I have only ever seen listings like
this from users up to about 600 feedback with very poor feedback ratings. . . . I don’t
think a listing like this could ever exist with that many feedbacks, and that high a
%.” Although our review of actual auction listings indicates that it is possible to have
poor quality listings and a high reputation score, it is uncommon (see Table 1).
A second limitation is that the seller names were selected to portray specific types
of vendors: professional vs. nonprofessional vendors. Name choice is a factor that is
controlled by the vendor and the names selected for the survey were based on actual
eBay seller names seen on eBay (e.g. der-trash and sparetime3). However, the design
of the experiment does not allow us to distinguish the effects attributable to choice of
vendor names versus those attributable to auction listing quality.
The survey suggests that we should expect to see price premiums for vendors with
higher quality auction listings but leaves some doubt as to the actual price premi-
ums we should expect to see. The survey did not allow us to definitively determine
whether higher quality online auction listings generate price premiums in actual auc-
tion settings. Since participants were not actually purchasing the products in question,
it can be argued that this study has poor external validity and that the predicted price
premiums may not be present in actual auction markets.
This limitation has been addressed in an experiment that evaluates the tangible
effects auction listing and vendor attributes can have at real online auctions [16].
In the experiment two real online auction businesses were established and run for
a period of one year. The vendors used the high and low quality listing styles from
this study. The results of the experiment are consistent with the results of this survey.
Both studies show Web quality has a significant impact on intention to transact, which
then contributes to price premiums received by vendors with higher quality listings.
The experiment demonstrated an average price premium of 17.6% achieved by the
vendor with higher quality auction listings [16]. This suggests that of the linkage
between Web quality and intention to purchase, and intention to purchase and price
premiums proposed in the research model has nomological validity.

9 Future research

Future research could strengthen the results of this study in several ways. Although
the presented research did not find any appreciable effect from product type on inten-
The relationship between website quality, trust and price premiums 19

tion to transact or price premiums, this may be a confounding effect from using a lim-
ited number of product categories. Additional research can be undertaken to extend
the examination of the role of product type on website quality induced price premi-
ums. Secondary data studies utilizing data from established online auction providers
like eBay could be performed to gather additional empirical evidence. These studies
would require the analysis of each auction listing to quantify the listing quality as
well as to assess that the products being compared are (nearly) identical. A possible
advantage of secondary data studies would be that it could allow researchers to deter-
mine the specific attributes of website quality that are most critical for each product
type to generate price premiums.
In addition, the connection between website quality and trust, intention to transact,
and price premiums should be extended to eBusinesses in general, including direct
B2C transaction sites. Since almost no barriers to entry exist for businesses on the
World Wide Web, it is very easy for entrepreneurs and other new eBusiness sites to
be developed. New eBusinesses suffer from the same lack of reputation to consumers
as online auction sellers. While previous research has examined website quality with
users’ perception of business capability within single eBusiness domains [10, 12–14],
our research indicates that the direct measures of willingness to transact and where
possible price premiums should also be related to website quality. Further research
is needed to investigate the generalization of the presented research in this article to
B2C and possibly B2B eCommerce websites.

Appendix A: Auction listing designs

Fig. 4 Sample high quality online auction listing

20 D.G. Gregg, S. Walczak

Fig. 5 Sample low quality online auction listing

Appendix B: Comparison of mean responses

Table 6 Mean responses by

seller reputation High quality listings Low quality listings
5/100% 100/99% 1000/99% 5/100% 100/99% 1000/99%

A1 5.74 5.56 5.68 3.32 3.75 3.58

A2 5.56 5.45 5.60 3.48 3.86 3.68
I1 5.39 5.25 5.32 3.82 4.18 4.19
I2 5.70 5.46 5.48 4.30 4.65 4.64
B1 5.59 5.43 5.44 3.80 4.13 4.16
B2 5.51 5.34 5.35 3.76 4.00 4.09
Trust 5.33 5.35 5.32 3.86 4.30 4.35
W1 5.62 5.45 5.41 3.05 3.62 3.55
W2 5.89 5.73 5.74 3.69 4.17 4.16
W3 5.72 5.35 5.25 2.24 2.57 2.58
* Values for high & low quality P1 3.37 3.12 3.08 2.29 2.35 2.29
listings significantly different at P2 4.80 4.63 4.58 2.73 2.92 2.88
p < 0.001
The relationship between website quality, trust and price premiums 21

Table 7 Mean responses by product

High quality listing Low quality listing

DVD Jump drive Camera Ipod DVD Jump drive Camera Ipod

A1 5.71 5.65 5.54 5.73 3.87 3.54 3.35 3.41

A2 5.72 5.48 5.41 5.50 3.98 3.73 3.44 3.52
I1 5.54 5.29 5.13 5.28 4.21 4.09 4.02 3.94
I2 5.81 5.57 5.38 5.35 4.63 4.56 4.65 4.30
B1 5.68 5.45 5.32 5.45 4.15 4.07 4.00 3.90
B2 5.60 5.39 5.18 5.39 4.07 4.04 3.91 3.78
Trust 5.56 5.26 5.17 5.30 4.39 4.14 4.15 4.00
W1 5.65 5.53 5.33 5.42 3.68 3.56 3.14 3.23
W2 5.96 5.81 5.67 5.65 4.28 4.21 3.85 3.65
W3 5.41 5.37 5.51 5.47 2.54 2.61 2.32 2.39
P1 2.80 3.15 3.56 3.29 2.13 2.30 2.43 2.40
P2 4.57 4.60 4.84 4.67 2.87 2.90 2.88 2.74

* Values for high & low quality listings significantly different at p < 0.001

Table 8 Mean responses by

new vs. used High quality Low quality
New Used New Used

A1 5.68 5.64 3.35 3.77

A2 5.53 5.54 3.51 3.85
I1 5.29 5.35 3.88 4.26
I2 5.58 5.50 4.38 4.70
B1 5.46 5.51 3.81 4.26
B2 5.38 5.41 3.76 4.16
Trust 5.33 5.33 4.02 4.34
W1 5.55 5.43 3.17 3.66
W2 5.83 5.73 3.77 4.26
W3 5.61 5.26 2.29 2.66
* Values for high & low quality P1 2.91 3.47 2.13 2.49
listings significantly different at P2 4.68 4.66 2.85 2.84
p < 0.001

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Dawn G. Gregg is an Associate Professor of information systems at the University of Colorado, Den-
ver. She received her Ph.D. in Computer Information Systems and her M.S. in Information Management
from Arizona State University, her M.B.A. from Arizona State University West, and her B.S. in Mechan-
ical Engineering from the University of California at Irvine. Her current research seeks to improve the
quality and usability of Web-based information. Her work has been published in journals including MIS
Quarterly, International Journal of Electronic Commerce, IEEE Transactions on Systems Man and Cy-
bernetics, Communications of the ACM, and Decision Support Systems. Dr. Gregg is also a cofounder of
Developing Minds Software, a company that provides software services that allow for the collection and
analysis of special education data.
Steven Walczak is an Associate Professor of information systems at the University of Colorado Denver.
He received his Ph.D. in Artificial Intelligence from the University of Florida and his M.S. in Computer
Science and B.S. in Mathematics from the Johns Hopkins University and the Pennsylvania State University
respectively. His current research interests are in knowledge management, e-commerce applications, ap-
plied intelligent agents, and neural networks. He has over 90 peer reviewed publications including articles
in MIS Quarterly, Journal of Management Information Systems, IEEE Transactions on Systems Man and
Cybernetics, IEEE Transactions on Knowledge and Data Engineering, and Decision Support Systems.