Consumers pay more for charity-linked products, spurring tornado relief

The wave of destructive tornadoes throughout the United States this spring has resulted in an outpouring of charitable donations. PGA Charities auctioned a broken Charles Barkley golf club on eBay to raise money for tornado relief. Ellen DeGeneres is auctioning sports memorabilia. Bruno Mars auctioned signed items.

While all donations help the cause, raising funds through eBay auctions can be particularly effective, both for consumers and sellers, according to research by a strategy professor at Olin Business School, Washington University in St. Louis.

“Selling items through eBay, particularly through eBay’s Giving Works charity auction program, is a great way for people or organizations with products to sell to give money,” says Daniel W. Elfenbein, PhD, assistant professor of organization and strategy at Olin.

Elfenbein is co-author of a 2010 study titled “A Greater Price for a Greater Good? Evidence that Consumers Pay More for Charity-Linked Products.” His study found that prices for charity-linked items on eBay were 6 percent higher, on average, than prices for identical non-charity items.

Morever, the research shows that bidders appear to value charity revenue at least partially as a public good, as they submit bids earlier in charity auctions, stimulating other bidders to bid more aggressively.

“Economists think that charity auctions are attractive to buyers in two ways,” Elfenbein says. “First, buyers feel good if the money they spend is going to solve a problem they care about. Second, they feel good if the charity receives money, regardless of its source. Your bid might be the winning bid, or if you lose, it might raise the price the winner has to pay, increasing the proceeds that go to the cause.”

The price differences between charity and non-charity items can be particularly high in times of great perceived need.

“We find that charity links generate even more impressive increases in consumer demand in the wake of disasters like Hurricane Katrina, ” says Elfenbein.

Additional work Elfenbein conducted with co-authors Ray Fisman, PhD, of Columbia University and Brian McManus, PhD, of University of North Carolina at Chapel Hill, revealed that in the three months following Hurricane Katrina, the price premium for Katrina-related charity items nearly was twice the normal level. These products also were much more likely to be purchased when eBay sellers listed the items at high start prices.

“At the end of the day, consumers are willing to pay more for charity-linked products. Increasing the proceeds from the sale allows sellers to donate more,” Elfenbein says.