1. 1 ONLINE AUCTIONS

2. 2 Consumer power is changing the way the world shops – Search Product information Price comparison Online auctions offer an alternative service

3. 3 Two broad categories of auctions 3 rd party direct – bricks and mortar Particular interest in 3 rd party

4. Auction Overview In an auction, a seller offers an item for sale, but does not establish a price Bidders –Potential buyers Bids –Prices bidders are willing to pay for an item Shill bidders –Can artificially inflate the price of an item

5. English Auctions In English auctions, bidders publicly announce their successive higher bids until no higher bid is forthcoming Open auction –Bids are publicly announced Minimum bid –The price at which an auction begins Reserve price –Minimum acceptable price

6. English Auctions (continued) Yankee auctions –English auctions that offer multiple units of an item for sale Disadvantages –Winning bidders tend not to bid their full private valuations –Bidders risk becoming caught up in the excitement of competitive bidding

7. Dutch Auctions Dutch auctions are also called descending-price auctions Form of open auction in which bidding starts at a high price and drops until a bidder accepts the price Often better for the seller Good for moving large numbers of commodity items quickly

8. Other Types of Auctions Sealed-bid auctions –Bidders submit their bids independently Second-price sealed-bid auction –Highest bidder is awarded the item at the price bid by the second-highest bidder Open-outcry double auctions –Buy and sell offers are shouted by traders standing in a small area on the exchange floor

9. Other Types of Auctions (continued) Double auction –Buyers and sellers each submit combined price-quantity bids to an auctioneer Reverse (seller-bid) auctions –Multiple sellers submit price bids to an auctioneer who represents a single buyer –Bids are for a given amount of a specific item that the buyer wants to purchase

10. Online Auctions and Related Businesses Three categories of auction Web sites: –General consumer auctions –Specialty consumer auctions –Business-to-business auctions Largest number of transactions occurs on general consumer auction sites

11. General Consumer Auctions Most common format used on eBay –Computerized version of the English auction eBay English auction –Allows a seller to set a reserve price –Bidders are listed –Bid amounts are not disclosed until after the auction –Allows sellers to specify that an auction be made private

12. Other Auctions Specialty Consumer Auctions e.g. Golf Club Exchange, Cigarbid.com, and Winebid Reverse bid –Buyer can accept the lowest offer or the offer that best matches the buyer’s criteria Business-to-Business Auctions e.g. Liquidation brokers Business-to-Business Reverse Auctions (popular with government/suppliers)

14. Auction-Related Services Auction escrow services –An independent party that holds a buyer’s payment until the buyer receives the purchased item and is satisfied with it Auction directory and information services –Offer guidance for new auction participants –Offer helpful hints and tips for more experienced buyers and sellers along with directories of online auction sites

15. Auction-Related Services (continued) Auction software –For sellers Software offers services that can help with or automate tasks such as image hosting –For buyers Software observes auction progress and places a bid high enough to win the auction

16. Auction-Related Services (continued) Auction consignment services –Create an online auction for an item –Handle the transaction –Remit the balance of the proceeds

17. 17 Other auction sites: Yahoo TaoBaoYahoo TaoBao – 72% of China $1.7 Billion in auctions Stuff.com.au New Zealand Graysonline Amazon And the weirdweird

18. 18 Is Price all that matters? Auctions have been around in one form or another forever. Most people think in terms of the highest bidder winning.

19. 19 Early research emphasis on online cost reduction over brand based differentiation (Gilmore 1999)

20. 20 Malhotra et. al. (2002) suggests online shopping purely functional nature in contrast to catalogue shopping which delivers value in terms of customer return on investment and aesthetics

21. 21 ‘The Market for Lemons,’ Quality, uncertainty and the market mechanism (Akerlof 1970) Key issues – trust quality uncertainty skill of the merchant to identify quality Have auctions changed the dynamics of the ‘lemon’

22. TRUST Auctions all have buyer/seller feedback Useful but not always reliable Need to manage risk VIDEO eBay example Who is bidding?

23. 23 Akerlof identified institutions that arise to counteract the effects of quality uncertainty. They include : Guarantees Risk shifting from buyer to seller Brand names Licensing (certification, rating etc)

24. 24 ‘One of the thrills is the bidding process’ (Alterio 2004) Auction buyers may include: Passionate collectors, pragmatic bargain hunters, time savers, or sporting ‘thrill seekers’. So why buy at auction?

25. 25 Price There are a number of facets to an auction but a key facet is price Most people think in terms of the highest bidder winning.

26. 26 Features of price Price fluctuation is the, or the determination of price, is the end result of the interplay of the forces of supply and demand. Price is sometimes historic, but often not clear particularly for new innovative products

27. 27 Features cont. The auction process can in theory leave everyone better off Sometimes price may be fixed (eg Rolling Stones tickets) and people may then auction. An alternative dynamic pricing system for supply/demand is a Dutch auction. Good when shortage of supply

28. 28 Fluidity of pricing Different individuals are often willing to pay more or less for the same product, leading to fluidity of pricing. May benefit seller Reality is that different people pay different prices for the same products all the time. Examples? Even if price stays the same discounting can apply for individuals.

29. 29 Tools and services Seller on-ramp http://pages.ebay.com/startselling http://pages.ebay.com/startselling Seller central www.paypal.com My eBay Want it now Paypal

30. 30 Conclusion The Digitalization of the transaction process and database-driven prices are becoming the norm. Online auctions are yet another example of new business models driven by the digital economy.

31. Exercise For further information on auctions refer Chapter 6 in the text and the podcast on online auctions on the Digital Enterprise. Answer the questions on the wiki page (also included on the next slide)

32. Questions to consider: eBay is one of the only major Internet "pure plays" to consistently make a profit from its inception. What is eBay's business model? Why has it been so successful? Other major web sites, like Amazon.com and Yahoo!, have entered the auction marketplace with far less success than eBay. How has eBay been able to maintain its dominant position? What method does eBay use to reduce the potential for fraud among traders on its site? What kinds of fraud, if any, are eBay users most susceptible? eBay makes every effort to conceptualize its users as a community (as opposed to, say "customers" or "clients"). What is the purpose of this conceptual twist and does eBay gain something by doing it? eBay has long been a marketplace for used goods and collectibles. Today, it is increasingly a place where major businesses come to auction their wares. Why would a brand name vendor set-up shop on eBay? (Questions sourced from ‘Managing the digital enterprise)