Journal of Retailing 82 (2, 2006) 155–164

From Fatwallet to eBay: An investigation of online

deal-forums and sales promotions
Ram D. Gopal a,∗ , Bhavik Pathak a,1 , Arvind K. Tripathi b,2 , Fang Yin a,3
a Department of Operations and Information Management, School of Business, University of Connecticut, Storrs, CT 06269-2041, USA
b Management Science Department, Box 353200, University of Washington Business School, Seattle, WA 98195-3200, USA

Abstract

Sales promotions are an important part of retail advertising strategy. Traditionally, research on sales promotions has generally assumed
that the buyers are end consumers who do not engage in reselling, in large part due to high transaction costs. However, the recent Internet
related technologies have dramatically lowered the cost of transferring goods between consumers, leading to relative ease of reselling activity
amongst individual consumers. Little is known about the impact of this phenomenon on retailer’s sales promotion strategy. In this research we
investigate the reselling activity in online auctions for products that active deal seekers can obtain at deeply discounted prices from retailers.
We further investigate the role of deal-forums in the resale process. Data is collected from an online deal-forum (http://www.fatwallet.com/)
and eBay to test various reselling-related hypotheses. The results show that there is a significant abnormal increase in the number of newly
posted auctions of a product after the deal information of this product is posted on deal-forum website. We also find that there is a significant
price incentive for individuals to resell. The implications for sales promotion research and practice are discussed.
© 2006 New York University. Published by Elsevier Inc. All rights reserved.

Keywords: Online deal-forums; Sales promotions; Advertising strategy; Online auctions; Virtual communities

Introduction For the potential resellers, another Internet phenomenon –

Internet technologies have fostered the development of
numerous online communities or groups, widely known as
virtual communities. These virtual communities facilitate
information-sharing among participants with specific inter-
ests and maximize the knowledge base of the participating
entities. In this study, we examine those virtual communities
that focus on sharing various deal information of consumer
products that leads to lower purchasing price of an item. We
will refer to these virtual communities as deal-forums. The
deal information is valuable to all deal-forum participants
including both those who have a need for the product and
those who are interested in reselling products to make a profit.
∗ Corresponding author. Tel.: +1 860 486 2408; fax: +1 860 486 4839.
E-mail addresses: Ram.Gopal@Business.uconn.edu (R.D. Gopal),
Bhavik.Pathak@Business.uconn.edu (B. Pathak),
tripathi@u.washington.edu (A.K. Tripathi),
Fang.Yin@Business.uconn.edu (F. Yin).
1 Tel.: +1 860 486 5295; fax: +1 860 486 4839.
2 Tel.: +1 206 221 5369; fax: +1 206 543 3968.
3 Tel.: +1 860 486 6182; fax: +1 860 486 4839.
online auction houses – provides a cost effective way to reach
potential buyers without the restriction of space and time.
This relatively new phenomenon – reselling activities
among consumers facilitated by deal-forums and online auc-
tion houses – poses a new challenge for the sales promotion
strategies of manufacturers and retailers. Theses resellers
may buy discounted items in bulk to maximize their profits
by reselling and thus, may defeat the objectives of sales pro-
motions offered by firms. In this research we investigate the
reselling activity in online auctions for products that active
deal seekers can obtain at deeply discounted prices from
retailers. We further examine the role of deal-forums in the
resale process. Data are collected to test the hypothesis that
there exists an abnormal increase in the supply of a product at
online auction houses after the deal information of the same
product is available on the deal-forum. The results of this
research may have several important implications on firm’s
sales promotion strategies.
Blattberg and Neslin (1990) discuss the role of sales pro-
motion objectives in sales promotion planning process and
highlight important promotion objectives which include: (1)

0022-4359/$ – see front matter © 2006 New York University. Published by Elsevier Inc. All rights reserved.
doi:10.1016/j.jretai.2006.02.002
156 R.D. Gopal et al. / Journal of Retailing 82 (2, 2006) 155–164
generating store traffic, (2) moving excess inventory, (3)
enhancing store image, and (4) creating a price image. In this
research we introduce individual resellers as a new dimen-
sion for consideration into sales promotion analysis. This
could potentially change some of the existing findings in the
literature. Sales promotion literature has implicitly assumed
that buyers of items under promotion are final users. Based
on this, researchers have argued that sales promotion, espe-
cially price discounts, has some negative impacts such as
causing stockpiling and purchase acceleration (Blattberg et
al. 1981), and negatively affecting reference price and brand
image (Grewal et al. 1998). However, if buyers of the item
under promotion are resellers instead of final users, these
negative impacts could be somewhat mitigated. In addition,
studies on dynamic pricing have suggested that the Internet
has provided a means for mass customization of sales pro-
motions by targeting individual buyers on seller’s website
(Kannan and Kopalle 2001). Our findings extend the above
argument by suggesting that deal-forums could be used as
another way to customize promotions to target specific buyer
groups.
Next, we discuss some background literature on vir-
tual community and online auctions. Then we develop our
hypotheses, the empirical model, and describe the data col-
lection process. After presenting the empirical results, we
discuss in detail the theoretical and managerial impacts of
our findings.
Background
Virtual community began as a spontaneous, noncommer-
cial, and social event (Rheingold 1993) to provide the com-
munity members the opportunity to share their experiences,
opinions and knowledge with others (Bickart and Schindler
2001), and has been studied extensively in the field of soci-
ology and psychology. There is also an increasing discussion
on how the economic potential of virtual communities can be
exploited (e.g., Rosenoer et al. 1999). Hagel and Armstrong
(1997) suggest that the greatest profit-making potential on
the Internet centers on the development of virtual commu-
nities, which provide consumers with the ability to develop
relationships, exchange information on specific topics, and
buy and sell products.
Balasubramanian and Mahajan (2001) suggest that a
member of virtual community can derive monetary gain
when, for example, purchasing products at a lower price using
deal information, but most of the time can only derive utility
from the satisfaction of contributing to virtual communities
and gaining respect from other members. Interestingly, very
little is known about opportunities for members of virtual
communities to derive monetary gains through interaction
with other consumers. This research attempts to fill this gap.
One possible domain that is relevant in searching for ways
for virtual community participants to realize economic gains
is to examine the internal linkages between deal-forums and
online auctions. Online auction sites such as eBay.com have
grown into a huge market place where millions of people con-
duct transactions worth of millions of dollars everyday. Hun-
dreds of thousands of people engage in product selling via
online auctions on a fulltime basis (Adler 2002). In addition
to individual consumers, small businesses are also starting to
jump on the online auction bandwagon (Carlton 2000). Inter-
estingly, only a few large wholesalers and retailers, online
or bricks-and-mortar, have moved to actively participate in
online auctions (Adler 2002), plausibly to avoid creating con-
flicts between online auction channel and existing channels.
The fundamental incentives to engage in reselling activity
stem from the differential pricing strategies that sellers prac-
tice widely. Such price discrepancies can arise from the prac-
tice of price discrimination across customer or geographic
market segments, or from periodic promotional activities.
Significant reselling activity occurs in secondary mar-
kets of used goods, and this phenomenon has been widely
studied. Arunkundram and Sundararajan (1998) explore the
economics involved in an Internet-enabled electronic sec-
ondary markets for used goods and find that the secondary
market has an adverse effect on the new goods seller who has
a high market share and for products with high technologi-
cal obsolescence rates. However, they also report that such
electronic secondary markets have a positive impact on the
consumer surplus in almost all situations.
Lee and Whang (2002) investigate an electronic secondary
market where reselling occurs between retailers, as opposed
to individual consumers. They present a model with one man-
ufacturer and two retailers, where the retailers can engage in
reselling of excess inventory. They present an analysis of
the impact of the secondary market on the supply chain, and
present strategies for the manufacturer to enhance sales by
effectively leveraging the secondary market.
In contrast to the existing work, our research considers (a)
reselling activity for unused items, (b) reselling undertaken
primarily by individual consumers, and (c) when reseller has
no pre-arrangement with or consent from the original retailer.
Our central contention is that the emerging Internet-based
technologies provide opportunities for individuals to procure
items at a deep discount, and subsequently resell at online
auctions at sufficiently higher prices. These technologies sig-
nificantly lower the arbitrage costs for individuals to engage
in reselling; online auctions lower the transaction costs, and
deal-forums lower the search cost to procure information
about product availability at deeply discounted prices.
Research hypotheses
The Internet has had an enormous impact on marketing
research and practice. One such impact is the increasing ease
with which firms can dynamically change the prices of their
products in the virtual value chain, either by updating the
posted prices or by offering customized coupons targeting
individual shoppers. The impacts of such dynamic pricing
 R.D. Gopal et al. / Journal of Retailing 82 (2, 2006) 155–164
practices on consumer behavior such as price search, trust,
learning, and reference prices have been studied (Kannan
and Kopalle 2001). Since dynamic pricing and promotions
are becoming more prevalent in marketing practice in com-
parison to the traditional mass marketing approach, this phe-
nomenon raises issues regarding the reach and impacts of
deals offered by firms. Some of the promotions are not eas-
ily accessible to all consumers. When a seller offers a deal,
the likelihood of a consumer taking advantage of the deal
depends on (a) whether the deal information actually reaches
that consumer and (b) whether that consumer has the desire
and capability to conduct the purchase. With respect to a spe-
cific deal on a specific product, the following three groups
of consumers are pertinent: (1) aware of the deal informa-
tion but do not need the product; (2) need the product but not
aware of the deal information; and (3) need the product and
are aware of the deal information but cannot use the deal due
to the restrictions on the redemption of the discount/coupon,
or geographic and temporal constraints. The third category
of consumers could be the result of many different situations
such as: a deal is only offered in certain locality; or a deal
involves lengthy rebate process; or a deal is only offered dur-
ing a specific period of time.
From the utility maximization perspective
(Balasubramanian and Mahajan 2001), there exists incentive
for the consumers in (1) to utilize the information they obtain
to purchase the product and resell it to the consumers in (2)
and (3) at such a price that both parties are better off by the
transaction.
Typically sellers in online auction market obtain their
items from various sources such as manufacturers, whole-
salers, retailers, other consumers, etc. Items offered in online
auctions could be either used or unused. The supply of an
item fluctuates on a daily basis and is likely to correlate with
the supply of similar items. For example, the supply of a cer-
tain model of HP laser printer is likely to correlate with the
supply of other HP laser printers since there exist common
supply-affecting factors that decide, among other factors, the
availability of both the former and the latter in online auctions,
such as the overall demand for laser printers. In addition, it is
also reasonable to assume that sellers of this specific printer
are responding to the activities of sellers of similar printers
in the market. All these contribute to the correlation among
the fluctuations in the supply of similar items.
If many participants take advantage of a deal that is offered
on a deal-forum and start reselling via online auctions, one
expects to observe an abnormal increase in the supply of the
item offered in the deal. Here, we define abnormal increase in
supply as the increase of the supply that cannot be explained
by the fluctuations in the supply of similar items. In addition,
if this abnormal increase is due to the reselling activity, one
expects that the abnormal increase in unused items instead of
used items.
The magnitude of the abnormal increase in supply depends
on, among other factors, depth of discount, popularity of
the product, and the number of individuals participating
157
in reselling activities; which in turn depends on the num-
ber of individuals who are aware of the deal information.
Deal-forums formed by savvy shoppers to exchange various
money-saving tips provide a cost-efficient way to disseminate
deal information to a large audience in a short period of time.
Shoppers around the country post information and their expe-
riences about deals, discounts and rebates, sometimes even
pricing-errors, on these websites. Sometimes the deal infor-
mation is posted even before the retailers officially announce
it. Of course, consumers can obtain deal information from
various other channels such as word of mouth, newspaper
and store fliers. However, these channels do not provide the
reach and speed offered by the deal-forums. Therefore, the
posting of a deal on an online deal-forum is a signal that
the deal information has reached a large audience. Reselling
activity should follow subsequently if the deal is offered at a
price level that provides sufficient incentives to resell. This
leads to the following hypothesis:
H1. Abnormal supply increase of an unused product on
the online auction site is preceded by the posting of deal
information of this product on the deal-forum.
Alternate factors, besides reselling, can potentially cause
abnormal increase in the supply at online auction channel as
well. It is conceivable that the retailer itself could be engaged
in both the deal-forums and subsequently in the online auc-
tion channel. However, this possibility could be ruled out
by only considering online auctions conducted by individual
consumers, and not the retailers. Although quite a few retail-
ers have presence on eBay in the form of “eBay Stores” (e.g.,
Sears, Dell, and HP), their selling activities are minimal and
are not a significant portion of their overall sales. And we
have avoided these sellers in our data collection.
Another possible confounding factor may be the obso-
lescence of the product under consideration, rather than the
specific sales promotion offered by the retailer. This is partic-
ularly relevant for computer and consumer electronic prod-
ucts, which have high obsolescence rates. Obsolescence may
lead owners of older models, who wish to upgrade to newer
model, to dispose of the products at online auctions. One
would expect such auctions to be for used items. Consider-
ation of only unused items helps rule out this explanation
for the abnormal increase in the number of auctions. Another
concern regarding obsolescence is that the deal information of
a product serves as a signal of pending obsolescence; there-
fore triggering hastened selling by current sellers through
online auctions. However, the direction of the impact of this
concern on the online auction activities is not clear since these
sellers also have the incentive to hold back selling activity to
avoid price competition. The products used in this study have
only been released to market for an average of 6.6 months
at the time of our data collection, which somewhat relieves
the possible complication resulting from the issue of obso-
lescence.
As discussed earlier, the viability of the reselling activity
depends critically on economic incentives to engage in the
158 R.D. Gopal et al. / Journal of Retailing 82 (2, 2006) 155–164
activity. From the perspective of the resellers/auctioneers,
it is desirable that there exists a profit margin between the
average auction price, which could be considered as the
expected revenue from reselling, and the price at which
the resellers/auctioneers obtained the product based on the
deal information from the deal-forum. Hence, the following
hypothesis:
H2. The average auction price of a product is higher than
the discounted price that is posted on the deal-forum.
According to the basic economic principle of supply and
demand, if the supply of a product increases abnormally, this
should result in lower average price of the product on the
auction sites, compared to the prices of auctions that end prior
to the posting of the deal and the abnormal supply increase.
Hence the following:
H3. After the deal information of a product is posted on the
deal-forum, average auction prices are lower than before.
Methodology
To link the posting of discount/coupon information on the
deal-forum to the possible increase in the supply on the auc-
tion site, we designed an empirical model in a way that bears
close resemblance to an event study. Event study methodol-
ogy has been adopted by numerous accounting and finance
studies to examine the relation between a certain type of man-
agement events and the abnormal stock price/volume changes
that are possibly caused by these events (McWilliams and
Siegal 1997). Other applications of event study methodology
include research in law and economics, although the price of
the stock remains the focal variable of interest (MacKinlay
1997). Occasionally, event studies have been conducted on
nonstock prices such as the price of real estate property
(Colwell et al. 2000).
We construct an empirical model to test whether the sup-
ply of a product on an auction site increases abnormally after
the event of releasing deal information of the same prod-
uct on a deal-forum. As defined in the previous section, the
abnormality is relative to the normal fluctuation in the daily
supply, which is correlated to the fluctuation in the supply
of similar products. To describe the normal fluctuation in the
supply of a product, we use a supply reaction function that
is similar to the price reaction function used to model man-
ufacturer reaction to competitors’ price changes (Kopalle et
al. 1999). Industrial organization and marketing literature has
studied the interaction among firms in terms of their responses
to each other’s competitive price promotion activities. The
approaches used in these studies are to model the activities
of firms as responses to activities of every other firm (see
e.g., Kadiyali et al. 1996; Kopalle et al. 1999; Leeflang and
Wittink 1996). Following this approach, in the current con-
text, we model the supply quantity decision of sellers of a
product as the response to the overall supply quantity of sim-
ilar products. Specifically, we assume that, without the event
of information of a deal being disseminated on deal-forum,
the new supply of a specific product i at time t, NSi,t , can be
predicted from the new supply of all the products in the same
general category as i, NSci ,t
NSi,t = αi + βi NSci ,t + εi,t (1)
where εi,t is a random shock while αi and βi are product-
specific parameters to be estimated. Here, the general cate-
gory refers to those used by eBay, such as the general category
of “Dell UltraSharp 1800FP 18 Flat Panel LCD” is “Flat
panel/LCD monitor”. To avoid endogeneity, NSci ,t should
exclude NSi,t . Estimates α̂i and β̂i can be obtained from ordi-
nary least square (OLS) estimation using data from a period
before the event. This regression model implies that sellers
of a product will decide the supply of this product in reaction
to the supply of the general product category that the prod-
uct belongs to, NSci ,t , in addition to reacting to those factors
that are idiosyncratic to this product, εi,t . As long as all the
idiosyncratic factors are accounted for by the random shock
item, the relationship between NSi,t and NSci ,t should hold.
However, since the deal information is a new idiosyncratic
factor that is not accounted for by the random shock item,
the relationship that is captured by the regression model is
expected to change after the event occurs.
During the event window the abnormal new supply is
defined as:
ANSi,τ = NSi,τ − (α̂i + β̂i NSci ,τ ) (2)
where τ refers to individual date within the event window.
The variance of ANSi,τ can be calculated as:

2

1 (NSci ,τ − NSci )
Var(ANSi,τ ) = si 1 +
2
+ (3)
Ti Ti
(NSc ,t − NSc )
2
t=1 i i
where si2 is the variance of the OLS estimation, Ti is the total
number of days in the estimation period, and NSci is the mean
of the general category new supply over the estimation period
(Greene 2000, p. 307).
Accumulating the abnormal new supply over the event
window, we get a measure of cumulative abnormal new sup-
ply (CANS) for each product:
K

CANSi = ANSi,τ (4)
τ=1
K

Var(CANSi ) = Var(ASi,τ ) (5)
τ=1
where K is the length of the event window.
Following the standard practice of event study CANSi is
assumed to be identical and independently distributed. This
assumption implies that the causes of the abnormal supply are
not related to each other among different products. This is a
 R.D. Gopal et al. / Journal of Retailing 82 (2, 2006) 155–164 159

reasonable assumption since the occurrences of these abnor-
mal supplies spread over a period of time and across different
product categories. Finally, the average CANSi across n prod-
ucts (ACANS) is:
n products are mainly computer-related or personal electronics
1
ACANS = CANSi
n these products from http://www.zdnet.com/ when available.
i=1
n
1
Var(ACANS) = Var(CANSi )
n2
i=1
The null hypothesis H0 : ACANS = 0 can be tested using:
ACANS
Z= √ t(n − 2)
Var(ACANS)
To show that the abnormal supply increase only occurs after
but not before the event date, we plan to estimate (1) and
calculate (8) using both real event date, when the deal infor-
mation is posted, and hypothetical event date, from 1 to 5
days before the posting date, to see whether there is abnor-
mal supply increase before the deal information is posted.
Data
A deal-forum (http://www.fatwallet.com/) is used to iden-
tify the event of announcement of a specific deal. This is a
popular website for deal information of consumer products
(Pressler 2003). We first identify the product for which deal
information is posted. We do not include the generalized dis-
counts such as “30% off everything in store” but focus on
deals on single products with clearly defined specifications.
The related product is matched to the auctions on eBay. The
number of newly posted auction items for the same product
on a specific day is used as the measure of the new supply
of this product on that day. The keyword “new” is used in
the search to identify unused items. The new supply in the
general category is measured similarly. Due to the limited
availability of auction history data on eBay, the estimation of
the normal supply uses data up to 20–30 days before the deal
is posted. Datum was collected during a period of a month in
August 2003. As a result, 15 product deals were identified on
Fatwallet and are matched with the auctions on eBay. These
and are listed in Table 1. We also collected the release dates of
(6)
The price information including the deal price as well as the
actual auction prices are also collected for these products to
(7)
test hypotheses H2 and H3.
The event window could be set equal to the period between
the day of the initial posting of the deal and the day after
which the deal expires. Alternatively, one can extend the event
(8) window to expiration date plus a certain number of days to
compensate for the possible shipping time, lagging effect, or
both. One implicit assumption of the above methodology is
that the deal is unexpected. Notice that the beginning date of
the event window could be earlier than the date that the deal is
officially announced if, occasionally, the deal information has
been leaked to the deal-forums prior to the official announce-
ment of the deal (Lieber 2002). On the other hand, there
is another implicit assumption implied by the event study
methodology, which is that there are no confounding effects
during the event window. The justification of this assump-
tion necessitates using shorter event windows (McWilliams
and Siegal 1997). We test the robustness of the results by
employing different length of event windows ranging from 1
to 5 days.
Results and discussion
The average CANS observed for the 15 products are shown
in Table 2, along with results of the test for the significance
using different length of event windows. The results in Table 2
show that the ACANS related to the posting of deal informa-
tion on the deal-forum are positive and significant at the end
of the event window ranging from 1 to 5 days. The magnitude
of the ACANS ranges from seven auctions on the event day

Table 1
List of products
Product Posting date eBay category Release date
Epson CX5200 All in one printer 8/09/03 Printers > Multifunction all in one > Other 10/15/2002
Samsung ML 1710 Laser printer 8/10/03 Laser printers 04/28/03
Yamaha YST MS50 Speakers 8/12/03 Video and multimedia > Multimedia > Speakers –
Toshiba e335 8/13/03 Handheld Units 10/15/02
Logitech Quickcam Pro 4000 8/16/03 WebCams 08/14/02
Netgear MR814 8/17/03 Wireless networking > Access points, Routers 11/18/02
Linksys WRT54G 8/18/03 Wireless networking > Access points, Routers 12/01/02
Samsung 151V 8/19/03 LCD/Flat panel > 15 –
Canon G3 8/20/03 Digital cameras > Compact Zoon > 4.1 to 5.0 MP 10/15/02
Canon S400 8/20/03 Digital cameras > Compact Zoon > 4.1 to 5.0 MP 03/01/03
Canon S50 8/20/03 Digital cameras > Compact Zoon > 4.1 to 5.0 MP 04/01/03
Dell 1800FP 8/20/03 LCD/Flat Panel > 18 –
Dell 1901Fp 8/20/03 LCD/Flat panel > 19 and Larger 06/24/03
Fuji S5000 8/20/03 Digital cameras > Point and Shoot > 3.1 to 4.0 MP 08/15/03
160 R.D. Gopal et al. / Journal of Retailing 82 (2, 2006) 155–164
Table 2
Average cumulated abnormal new supply (ACANS)
Window length (days) ACANS (number of
abnormal auctions)
1 7.07
2 13.28
3 21.27
4 30.97
5 33.35
***
Two-tailed, degree of freedom = 13, p < 0.001.
to 33 auctions at the end of the 5-day event period. All these
positive abnormal new supplies are significant at p = 0.001
level, providing strong support for H1. Moreover, the ACANS
increases at a relatively constant rate as the length of window
increases, which is expected since this is an accumulative
measure.
Furthermore, the same statistical analysis has been
repeated using hypothetical event dates ranging from 1 to 5
days prior to the posting date of deal information. The results
are listed in Table 3. These results show that the abnormal
supply increase is consistently insignificant before the post-
ing date. The abnormal supply increase after the posting date
simply echoes the results in Table 2.
To test H2, Z-tests are conducted on the mean price of
auctions listed within 5 days after the event date against the
deal price. It is expected that the mean price of auctions posted
after the event date should be high enough for the potential
reseller to make a profit, given the deal price. The results of
this test are shown in Table 4. For 11 out of 14 products,
the mean auction prices are significantly higher than the deal
prices while only one product shows a mean auction price
significantly lower than the deal price. For the remaining two
products, the mean auction price is higher than the deal price
Table 3
Average cumulated abnormal new supply before the event
Shaded cells: before event date (all t-statistics insignificant).
but the difference is not statistically significant. The margin
ranges from 3 percent to 222 percent. Therefore, hypothesis
t-statistic H2 is partially supported.
Finally, two sample t-tests are conducted on the mean price
6.85*** of auctions of each of 15 products listed before and after the
9.08*** event date to test H3. As many auctions as available before
12.53***
16.40***
the event date and auctions within 5 days after the event date
16.27*** are used for these tests. The results are shown in the following
Table 5. In general, the direction of the change in price level
is inconclusive from these 15 products. The mean price drops
significantly after the event date for seven products, increases
significantly for two products, and does not change signifi-
cantly for the remaining six products. Overall, the hypothesis
H3 is not supported.
In summary, the results of various statistical analyses show
that there is a significant abnormal increase in the number of
newly listed auctions of unused products after the deal infor-
mation is posted on the deal-forum website. It appears that
the deal-forums are effective in providing useful information
to potential resellers. The mean price of auctions listed after
the event date tends to be significantly higher than the deal
price available to the deal-forum members. This difference
in prices provides sufficient economic incentive to engage in
reselling. After the posting of the deal information and the
increase of the abnormal new supply, the mean price of auc-
tions is not necessarily higher or lower than the mean price
before the abnormal new supply. Our empirical evidence
supports that there exists a temporal precedence between
the postings of deal information on the deal-forum and the
subsequent auction activity, and that there exists sufficient
economic incentive for individuals to engage in reselling.
There could be several reasons why hypothesis H3 is not
supported. First, even though the abnormal increase in the
number of new auctions is statistically significant, it might
 R.D. Gopal et al. / Journal of Retailing 82 (2, 2006) 155–164 161

Table 4
Z-test of mean price of auctions listed after event date against the deal price
Product Auctions listed after event date Deal price Z Margin (%)
Mean n
Epson CX5200 All in one printer $ 87.25 45 $ 50.00 10.744*** 75
Samsung ML 1710 Laser printer $ 96.56 19 $ 30.00 40.009*** 222
Yamaha YST MS50 Speakers $ 35.82 11 $ 24.00 3.407*** 49
Toshiba e335 $ 160.23 59 $ 199.00 −17.687*** −19
Logitech Quickcam Pro 4000 $ 64.71 9 $ 48.00 7.663*** 35
Netgear MR814 $ 40.79 16 $ 25.00 8.240*** 63
Linksys WRT54G $ 85.90 71 $ 57.00 37.137*** 51
Samsung 151V $ 228.61 2 $ 200.00 7.355*** 14
Canon G3 $ 514.38 61 $ 454.00 7.607*** 13
Canon S400 $ 421.24 57 $ 372.00 14.086*** 13
Canon S50 $ 459.62 58 $ 413.00 6.985*** 11
Dell 1800FP $ 400.27 36 $ 396.00 1.357 1
Dell 1901Fp $ 508.38 130 $ 494.00 8.975*** 3
Fuji S5000 $ 496.60 3 $ 415.00 1.464 20
*** Two-tailed, p < 0.001.

not be large enough compared to the overall size of the auc-
tion market to create a significant impact on the overall price
level of the auction market. The phenomenon of reselling
through online auctions is still nascent and the impact it gen-
erates might not have reached a critical point to significantly
change the price level. Second, the level of the impact is
arguably related to the depth of the discount and the popular-
ity of the product. If a discount is very deep and the product
is popular, more people may buy and resell, therefore result-
ing in more auctions and lower prices. To see whether this
is the case, we examined the number of views and replies
that the original posting of the deal information received on
the deal-forum website. These factors are indicators of the
interest generated in the deal-forums by a particular sales
promotion, and serve as a useful proxy for the popularity of a
deal. A casual observation reveals that those postings that are
associated with a significantly lower after-event mean auc-
tion prices (two products) received more number of views
and replies than the rest. Although more rigorous analysis
is needed, our preliminary analysis suggests that the price
change is likely related to the popularity of the deal.
Yet another reason for lack of support to H3 is related to
the skillfulness of auction sellers. If the number of auctions
is relatively low and there are significant number of adept
sellers who can sell high, then that defeats our H3 as well.
There are some theoretical and data-related limitations to
this study. It could be argued that the abnormal increase in the
number of auctions is simply due to the deal itself instead of
the posting of the deal in the virtual community. To counter
this argument, it is necessary to use a control group of prod-
ucts for which a deal is available but the deal information is
not posted on the deal-forum. If there is no significant abnor-
mal increase in the number of auctions listed after the deal
is out, the hypothesis H1 can be more strongly supported.

Table 5
Two-sample t-tests for mean price of auctions
Product Listed before event date Listed after event date (within 5 days) t-statistic

Mean n Mean n
Epson CX5200 All in one printer $ 76.83 51 $ 87.25 45 −1.928*
Samsung ML 1710 Laser printer $ 120.55 42 $ 96.56 19 6.158***
Yamaha YST MS50 Speakers $ 64.75 2 $ 35.82 11 0.532
Toshiba e335 $ 167.39 230 $ 160.23 59 2.737**
Logitech Quickcam Pro 4000 $ 58.46 68 $ 64.71 9 −2.669*
Netgear MR814 $ 45.40 107 $ 40.79 16 1.913*
Linksys WRT54G $ 116.10 35 $ 85.90 71 5.460***
Samsung 151V $ 219.25 10 $ 228.61 2 −1.311
Canon G3 $ 534.81 227 $ 514.38 61 2.195*
Canon S400 $ 417.76 241 $ 421.24 57 −0.868
Canon S50 $ 462.57 216 $ 459.62 58 0.401
Dell 1800FP $ 411.17 227 $ 400.27 36 3.268***
Dell 1901FP $ 526.23 260 $ 508.38 130 7.499***
Fuji S5000 $ 489.50 4 $ 496.60 3 −0.115
* p < 0.5 (t-statistic for one-tail).
** p < 0.01 (t-statistic for one-tail).
*** p < 0.001 (t-statistic for one-tail).
162 R.D. Gopal et al. / Journal of Retailing 82 (2, 2006) 155–164
Table 6
Summary of survey
Questions Responses
Frequency of visit Once or twice a year Once or twice a month
3 (4%) 5 (7%)
Deal-forum helps to find deal Strongly disagree Disagree
3 (4%) 0 (0%)
Ever purchased the deal found No Yes
in forum
2 (3%) 70 (97%)
Ever resold items on eBay Never considered it Considered but found
not worthwhile
22 (31%) 10 (14%)
Sample size = 72.
However, it is difficult to assemble such a control group of
products given the fact that the reach and the penetration of
the Internet are so that it is virtually impossible for a valu-
able deal to circulate exclusively outside of the Internet. We
do observe that the level of CANS is somewhat positively
related to the level of interest in the deal, which can be mea-
sured by the number of views and replies received by the
original posting. However, we need more data points to be
statistically confident about the positive relationship.
Additional validation
To further validate the possible relationship between
online deal-forums and auctions, we conducted a small-
scale survey on two deal-forums: fatwallet.com and
anandtech.com. The survey asked the forum members to
provide their opinions on the usefulness of deal-forums in
identifying deals, their purchasing activities, and their inten-
tion to resell. We post the solicitation on two deal-forums
and all the responses were electronically collected from vol-
unteers in a period of 45 days. Among the 72 respondents,
70 have purchased deal items found on the forum and 24
(33 percent) had resold these items on eBay. Another 16 (22
percent) considered reselling even though they had not done
so. Therefore, although it is impossible to track whether the
sellers on eBay are the members of deal-forums, this survey
does provide further support for the relation between deal-
forums and auction activities. The survey questions and the
responses are detailed in Table 6.
Implications
The results have significant implications for sales promo-
tion research and practice. Since 1980s, substantial numbers
of studies have been conducted to study the cause and effects
of sales promotions. Sellers offer sales promotions for vari-
ous reasons including shifting inventory cost from retailers
to consumers (Blattberg et al. 1981), dealing with demand
uncertainty (Lazear 1986), and price discriminating among
Once or twice a week Everyday
10 (14%) 54 (75%)
Neutral Agree Strongly agree
3 (4%) 18 (25%) 48 (67%)
Considered and may try later Yes
16 (22%) 24 (33%)
different segments of consumers (Narasimhan 1984), among
others. Price promotions affect sales through mechanisms
such as brand switching, repeat purchasing, purchase accel-
eration, and category expansion (Blattberg and Neslin 1990).
Research on sales promotions has generally assumed that
those who buy from the promotions are the end consumers,
and as a result, various consumer behavior theories have been
applied to understand why consumers respond to sales pro-
motions. However, this study shows that some of these buyers
may actually be resellers. Although the percentage of such
resellers might still be low at this point, we have every reason
to expect a growth that is as fast as that of the online auctions.
Loosely speaking, the deal-forum creates a new segment of
consumers who do not buy a product for consumption but
to resell for a profit, utilizing the information and liquidity
provided by the Internet. As this new phenomenon begins to
gain traction, it could have a profound impact on the practice
of offering sales promotion.
For example, marketing literature has long recognized the
existence of reference prices of consumers. Research also
shows that consumers’ reference prices are likely affected
by past price promotions (Kalwani et al. 1990; Levy et al.
2004). Therefore, too frequent price promotions might lower
consumer reference prices and hurt brand images (Dodds
et al. 1991). On the other hand, if many consumers pur-
chase the promoted items from resellers, the negative impacts
might be somewhat mitigated since the resellers will mark
up the prices. Sales promotion literature also recognizes the
dynamic impact of promotions on base line sales. Excessive
price promotions might cause the base line sales to decrease
and consumers price elasticity increase (Kopalle et al. 1999).
Again this negative impact could be partially avoided by cus-
tomizing the promotions to target resellers.
Our analysis reveals that the potential reselling activi-
ties of unused items by consumers could have both positive
and negative impacts on retailer’s sales promotion strategies,
depending on the original motivation of the sales promo-
tion. Shifting inventory cost from firms to consumers has
been argued to be one of the motivation of sales promotions
(Blattberg et al. 1981). From this point of view, the fast and
timely dissemination of information by deal-forums and the
 R.D. Gopal et al. / Journal of Retailing 82 (2, 2006) 155–164
following reselling activities could have a positive impact on
sales promotion strategies in a variety of market scenarios.
For example, if a seller announces a deal for inventory clear-
ance, deal-forums by spreading this information help in faster
inventory clearance. Although the profit of the retailer could
be affected by the reselling activities, this can be compensated
by lower inventory cost.
Further, deal-forums can also help retailers in shifting the
promotion strategies, from costly mass advertising to limited
or more focused target advertising. Frequent and large-scale
price discount might lower consumer’s reference price level
of the promoted products and could hurt the brand image.
Recently, studies on dynamic Internet pricing suggest that
firms can benefit from offering coupons dynamically on their
websites to mass customize promotions (Kannan and Kopalle
2001). Along these lines, the reselling phenomenon identi-
fied in this paper can also be leveraged by firms to design
“stealth” promotions that are not widely advertised and are
only available to those who actively search for such informa-
tion. Such promotions, besides enabling faster liquidation,
may enable more flexibility in price-setting than if explicit
and well-advertised promotions were offered. Retailers can
thus liquidate inventory more effectively with little or mini-
mal impact on the overall long-term pricing strategy.
Online deal-forums may also have significant negative
impact on retailer’s sales promotion strategies. For example,
if a seller announces a deal to expand the customer base in one
market (geographic area) but keeps the prices unchanged in
other market, deal-forums by spreading this deal information
provide an information premium to its members which may
defeat the seller’s objective of expanding its market base and
getting new consumers. Further, the consumers after obtain-
ing the product at a low price may engage in arbitrage that
could adversely affect the sales after the deal is expired. Thus,
we observe that in this scenario, deal-forums have an adverse
effect on seller’s sales promotion strategy. We recommend
that in such scenarios, firms may benefit by devising strate-
gies to discourage reselling by various means such as limited
quantity and warranty.
Some retailers are increasing their footprint in online auc-
tions to shortchange the incentives for individuals to resell.
For example, both Dell and Sears now operate as sellers
on eBay. However, the auctions conducted by these retail-
ers have been mainly for refurbished items. Also the auction
volume continues to be low and these retailers are yet to estab-
lish a strong and high profile presence in the online auction
houses.
Reselling could also hurt retailer’s initiatives in cross-
selling and target marketing. A retailer’s attempt at using a
discounted product as the “loss leader” to attract consumers
and create retailer brand effect may become less successful.
Target marketing may be impeded by the resellers who make
it more challenging to reach the right segment of consumers
through promotional deals. Reselling can also impact the
practice of price discrimination. According to Tirole (2000),
price discrimination is sustainable and profitable only when
163
the cost of transferring goods between consumers in differ-
ent markets is high. As the cost of engaging in arbitrage is
lowered due to the Internet technologies, it may result in
diminished benefits from price discriminating across cus-
tomer segments. As this phenomenon becomes more preva-
lent, it poses a major challenge for retailers attempting to
design effective sales promotion strategies. For example, con-
sumer response is one of the important factors determining
the optimal frequency, timing, and duration of promotion
(Silva-Risso et al. 1999). If the existence of significant num-
ber of resellers changes the dynamics of consumer response,
it should be incorporated into the decision-making process.
One possible direction for further study is to look into how
firms can incorporate the reselling activities through online
auctions into their promotion planning to design the promo-
tion so as to deter possible reselling activities.
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