Consumers’ bids in a group-buying auction are an indication of perceived trust in the initiator and perceived risk toward the mechanism. The extent of auction participation and bidding shows the liquidity of the sale goods—a network effect. In economics, positive network effects are generally associated with relatively larger installed bases of technology adoption and so on. Network effects increase consumer demand. Microeconomic theory stresses the effect that the value of a unit of network goods increases with the number of units sold, and that a network participant’s utility will increase with the number of other users participating. There is a connection to group buying in this respect. The number of existing auction bids acts as installed base for participation, and is related to perceptions of trust and risk in group-buying. The risks that consumers face are the final auction price, and whether the group-buying auction concludes successfully. Existing bids also may load on trust in the group-buying initiator. If there is little or no trust, there will be no bidding. So the number of bids may provide information on how much consumers trust the initiator and believe that the auction will succeed.
Word-of-mouth and reputation can also increase trust. There are several types of online reputation systems for e-commerce, search engine, online news, etc. Auction websites eBay and Yahoo! use two common formats for online feedback systems. Ratings give a quantitative reading on reputation. Textual comments enable users to describe their evaluations in words. Seller ratings often influence product prices, and textual comments change the seller’s pricing power. Textual comments may provide detailed and valuable information that cannot be found from ratings. For example, when a consumer finds a negative rating for a targeted group-buying auction initiator, he might want to understand how it resulted. Did the initiator do something wrong? Or was the rating inappropriate? From textual comments, a consumer can learn about how much trust to place in the opinion and its initiator. This may help consumers to make decisions about participating in group-buying auctions. Textual comments from participants are known to be a valuable mechanism in electronic auctions, but their effects are still unclear when the initiator plays a key role in group buying auction.