1. 1(#total) CS5038 The Electronic Society Lecture 6: Auctions and Other Services Lecture Outline Overview eBay example Types of Dynamic Pricing Auction Types Mechanisms Auctions – benefits, problems, uses Auction Process and Software Support Auction Fraud

2. 2(#total) Online Auctions  Used in B2C, B2B, C2C, G2B, G2C …..  Volume traded on eAuctions significantly larger than traditional auctions, and growing  Internet auction industry projected to achieve $54.3 billion sales by 2007  Innovative examples: 1.Warren Buffet (famous US stock investor) invites eight people to lunch, they pay $30,000 for the pleasure (money goes to charity)  In 2003 he put invitations on eBay – pushed price up to $250,100  In 2004 it was $202,000  Bidders were happy to get opportunity they would not otherwise have had 2.Google IPO – September 2004 – Dutch Auction on Internet  Generated more money  Fair distribution of shares (allegedly!) 3.eBay trading assistants – approx. 40,000  Charge 25% comission  Some earn $100,000-$150,000 per year in comission

3. 3(#total) eBay  Pam Omidyar was a collector of Pez candy dispensers  She suggested trading them on the Internet to her boyfriend  They set up AuctionWeb in 1995  Company was renamed eBay  Now over 500,000 new items added daily, 120 buyers  Many local US sites (60) and country specific sites (30)  Also owns/part owns many country specific sites: China, India, Korea, Japan – generates 46% of eBay’s business  Introduced seller protection in 2002  Bad cheques  Credit card fraud  Initially C2C, but in 2002 introduced Business Marketplace  http://pages.ebay.com/businessmarketplace/

4. 4(#total) Types of Dynamic Pricing Prentice Hall, 2002 Bartering Online  Example: office space, storage, factory space, idle facilities and labor  Difficult to find partners  bartering exchanges –whosbartering.com  Offer items to intermediary and earn points to buy other items Negotiating and bargaining online – technology helps:  Intelligent agents perform search and comparison to use in bargaining  Products and services may be bundled and customised

5. 5(#total) Auction Types Typeshttp://www.agorics.com/Library/auctions.htmlhttp://www.agorics.com/Library/auctions.html  Forward – One seller, many buyers  Reverse – One buyer, many sellers (aka tendering system)  Double – Many buyers, many sellers (lower prices usually)  Both bids and asks are allowed Mechanisms  English auction  Start at minimum price, set a minimum increment, bidders keep increasing their bid until only one is left or timeout  Known as Yankee auction when multiple items are being auctioned  Dutch auction – multiple items (Free fall auction if only one item)  Start at high price, price reduced at fixed time intervals until a bidder buys  Much faster than English auction  Sealed bid first price  Known as discriminatory auction when multiple items are being auctioned  Sealed bid second price (aka Vickrey)  Known as uniform-price auction when multiple items are being auctioned  Lack of commonality in naming conventions  What some people call a uniform second-price auction is known in financial communities as a Dutch auction

6. 6(#total) Auctions Benefits  Quick – especially to liquidate obsolete stock  Optimal price for seller  If seller is unsure of value  Discover buyer’s valuation Problems  Fraud – see slide 7  Reveals buyer’s valuation  Winner’s curse Uses  Coordination mechanism to establish equilibrium price  e.g. telecomms bandwidth – automatic auctions  Social mechanism to determine price – for rare goods  Highly visible distribution mechanism – bargain hunters  Component of EC system – e.g. group purchasing

7. 7(#total) Auction Process and Software Support Phase 1: Searching and comparing prices  Mega-searching and comparisons  Search utilities return all auctions selling an item  Automated search services  Notify buyers when items they are interested in are available Phase 2: Getting started at an auction  Registration and profiling (previous transaction records)  Listing and promoting – tools available for bulk listings  Pricing – set start price, bid increment and reserve price Phase 3: The actual bidding  Bid watching and multiple biddings  Auto-sniping - enter a higher bid during last seconds  E-proxy bidding—software system bids on behalf of the buyers Phase 4: Post-auction follow-up  Post auction notifications for winners  User communication - Chat groups, Mailing lists, Message boards  Shipping and postage  Payment - Electronic transfer, Escrow service, Credit-card payment

8. 8(#total) Auction Fraud Types of e-auction fraud  Bid shielding  Phantom bidders bid at a very high price when auction begins  Other real bidders are scared off  Phantoms pull out and low bidder can win  Shilling - sellers arrange to have fake bids placed on their items to artificially jack up prices  Auctioneer inserts fake bid in Vickrey auction  Rings – bidders collude, bid low, win and split profit later  Susceptibility to collusion:  (1) English (2) Vickrey (3) sealed first-price (4) Dutch  Dodgy Merchandise:  Fake photos, misleading descriptions, improper grading techniques, Selling reproductions as originals  Failure to ship merchandise after money is paid  Bogus loss and damage claims—buyers claim they never received an item or received it in damaged condition, request a refund

9. 9(#total) Protecting Against E-Auction Fraud  User identity verification  voluntary program on eBay - $5  Product Authentication services, Appraisal services  Employ expert authenticators  Grading services  Determines physical condition of an item  Feedback forum  Users build up online trading reputation  Insurance policy  eBay offers insurance underwritten by Lloyd’s of London  Escrow services - escrow.comescrow.com  Third party holds funds until buyer receives and inspects  Non-payment punishment  eBay - Suspends winners who don’t pay

10. 10(#total) Summary Types of Dynamic Pricing – one to many, many to one Auction Types – forward, reverse, double Mechanisms – English, Dutch, Sealed bid, Vickrey Auctions – benefits, problems, uses Auction Process and Software Support Auction Fraud  Dodgy bidding, dodgy auctioneers, dodgy goods QUIZ 9 1. technical ability of buyers 11. What are the steps in bargaining online? Search, selection, negotiation, continuing selection and negotiation, and transaction completion. 12. security

11. 11(#total)

12. 12(#total) Strategy and the Long Tail "We sold more books today that didn't sell at all yesterday than we sold today of all the books that did sell yesterday." - Amazon Examples:  Ecast - digital jukebox >150,000 tracks - what % of top 10,000?  eBay (auctions), eBay  Yahoo! and Google (web search),Yahoo!Google  Amazon (retail)Amazon  Netflix (video rental).Netflix  Key factor = cost of inventory storage and distribution  Costs insignificant -> viable to sell relatively unpopular products e.g. online store  Costs high -> only most popular products can be sold e.g. traditional movie rental store Implications for society and culture:  More tastes can be catered for because of cost reduction (in contrast to broadcast TV for example) Long tail alone is not enough (mp3.com) – nor are “hits only”