November 8, 2001

1
Auctions and Reverse Auctions

• November 8, 2001
• Jae Kyu Lee
• (jklee_at_kgsm.kaist.ac.kr)
• Graduate School of Management
• Korea Advanced Institute of Science and
  Technology

2
Composition of eAuction
WWW/IT
Competing Auctions and Trade Forms
Supplier (Seller)
Items Auctioned
Trading Rules
Auctioneer
Execution Process
Auction
Customer (Buyer)
Effects
Source Modified from Klein (1997)
3
The Process of eAuction

Register
4
Motivations of eAuctions
Coordinationmechanism
Distribution mechanism
Allocation mechanism
Price Discovery
Buyer Role
Short-term acquisition
Often experts/
Bargain hunting,
Bargain hunting,
of resources, e.g., for demand peaks, auction as
a mechanism to achieve an equilibrium
gambling motive
Professional collectors trying to acquire
rare items at a reasonable price
Gambling motive, Possible side motive charity
Supplier Role
Short-term allocation
Clearance of inventory
Attention, direct
Exposing items for
of resources, load balance
sale channel, public relations possible
side motive charity
sale to a charity, sufficient breadth of demand,
hope for a high price
Auctioneer/ Intermediary Role
Often electronic
Achieve high breadth
Limited role
Achieve high breadth
because of supplier-buy relationpossible
function as service provider for the supplier side
auction without auctioneer
and depth of the auctions, high trading
volume results in high returns, competitive
advantage over other auctions
and depth of the auctions, high trading
volume results in high returns, competitive
advantage over other auctions
Source Modified from Klein (1997)
5
Impact of Web-based Auction
Impact of the Web
Parameter
Auctioneer
Lower entry barriers opportunity for direct
sales.
Access Rules
Customizable Theoretically millions of potential
customers can be reached.
Focused product segments can be auctioned off
the technology extend the complexity of the
product description.
Item auctioned
Trading Rules
The trading rules reflect the lack of a
guaranteed service.
Execution process
For digital products the entire trading cycle can
be handled on the Web For physical products
the trading process and the physical logistics
of the trade objects can be separated, leading
to a reduction of costs.
Source Modified from Klein (1997)
6
Web based Auctions

• Negotiations using EDI B2B EDI
• Web-based (Sales) Forward Auctions eBay,
  Auction.co.kr
• Web-based (Procurement) Reverse Auctions
  Priceline.com
• Web-based Double Auctions Stock Exchanges
• (Arizona Stock Exchange closed
  www.azx.com)

Buyer


One
Many

Negotiations
Forword
One

using EDI

(Sales) Auctions

Seller
Reverse

Double Auctions

Many

(Procurement)
Auctions



Source Eric Van Heck, and Peter Vervest,
Communications of the ACM july 1998/Vol. 41, No. 7
7
Contrast of Traditional and Internet Auction
8
Types of Auctions

• Auction
• English Auction Ascending Auction
• Dutch Auction Descending Auction
• Sealed Bid Auction
• First Price Sealed Bid Auction
• Second Price Sealed Bid Auction
• Double Auction (vs. Single Auction)
• Continuous Double Auction
• Many sellers and auctioneer prices online
• Sealed Double Auction (Vickrey Auction)
• Many sellers and buyers bid simultaneouslly

9
Computerized Auction Clock for Dutch Flower
Auction
10
Items in Auctions
Source Carrie Beam, and Arie Segev, Fisher CMIT
Working Paper, Nov. 1998
11
Use Level by Auction Types
Source Carrie Beam, and Arie Segev, Fisher CMIT
Working Paper, Nov. 1998
12
Business Models of eAuctions

• Pure-play Internet companies
• Mainly for Customer-to-Customer
• Multitude of item low price items
• Auction Ltd., (www.auction.co.kr), eSellpia
  (www.esellpia.co.kr)
• eBay (www.ebay.com), egghead and ONSALE
  (www.onsale.com),
• Vertical Auction (or Auction Vortal)
• Click and Mortar of traditional auctioneer
• Mainly Business-to-Customer
• Speialized items high price items
• Build Community
• Sotheby (www.sothebys.com) paints
• Butterfiled Butterfield (www.firstauction.com)
  jewelry, paints, furnitures
• Christie (www.christies.com) paints,
  automobiles
• TechSmart Specialized in used or outdated PCs in
  a B2B auction.
• Reverse Auction Priceline.com, TravelBids.com,
  FastParts.com

13
Use Level by Business Models

• Items
• Any Items 74
• Specicalty 13
• Use Agents 7

• Business Model
• C2C (52) e.g.) eBay, Auction Ltd.
• B2C (25) e.g.) Zauction, Auction Ltd.
• B2B (6) e.g.) Industrialbid,
• B2C B2B (16)

Source Carrie Beam, and Arie Segev, Fisher CMIT
Working Paper, Nov. 1998
14
eAuction Sites
Company
eBay
Onsale/Egghead
Auction Ltd
Wa!Auction
Sellpia
www.ebay.com
www.onsale.com
www.auction.co.kr
www.waauction.co.kr
www.sellpia.co.kr
Opens
1995.5
End of 1995
1998.4
1999.9
1999.10.15
Members
37.6 M (Nov, 2001)
Merged
4.3 M (Nov, 2001)
closed
260M (Nov, 2001)
Items
2000 K
1290 K
100 K
20 K
20 K
Types
Portal
Vertal
Portal
Reverse Auction
Auction Hub
Fee
Sale 1.25-5 Register 0.2-2
Sale 1.25-5 Register 0.2-2
Sales (Free, Fee for Value Add)
Sale 3
Sales (Free, Fee for Value Add)
Payments
Online Credit
Online Credit
Online Credit
Online Credit
Online Credit
Seller Pays
Delivery Cost
Seller Pays
Seller Pays
-
Seller Pays
Stock Price
57
Merged to eqghead 99/32 (March 2000)
15,500 Won
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B2B Auctions

• Independent Auctions
• Company use a third-party auctioneer to create
  the site and sell the goods
• e.g. www.fairmarket.com, www.imxexchange.com,
  www.auctiongate.com
• Commodity Auctions
• Buyers and Sellers come together to a third-party
  Web site.
• Access Energy, Utilities, and Telecommunications
  or Dutch flower market
• e.g. www.band-x.com, www.metalsite.net,
  www.fastparts.com
• Private Auctions Open the Auction Market
  privately
• e.g.Ingram(www.auctionblock.com)

• Source Forrest Research, Fickel (1999)

18
Fraud Problems in Auctions

• 87 of Internet fraud accounts for eAuction.
• (Internet Fraud Watch fraud.org/internet)
• 9 out of 10 Internet-related complaints
  registered are concerned with auction fraud.
• (National Consumer Leagues National Fraud
  Information Center)
• Average auction loss is US248 per complaint.
• US1.1 million was lost due to the fraudulant
  activities.

19
Types of eAuction Fraud

• Bid Shielding
• Use of some phantom bidders to bid at very high
  price when the auction begins. Then at the last
  hour, the phantom bidders pull out, and one
  bidder with a very low price will win.
• Shilling
• Sellers arrange to have fake bids places on their
  item to artificially jack up high bids on their
  item.
• Fake Photos and Misleading Descriptions
• Improper Grading Techniques
• Selling Reproduction
• High Shipping Costs and Handling Fees
• Failure to Ship Mechandise
• Loss and Damage Claims
• Switch and Return

20
Protecting Against eAuction Fraud

• eBays measures
• Only 27 out of every 1,000,000 transactions at
  eBay were fraudulent in 2000.
• User Identity Verification
• eBay uses the services of Equifax to verify user
  identity for a 5 fee.
• Authentication Service
• Determine whether an item is genuine and
  described appropriately.
• Authenticator service for a fee.
• Grading Service
• Determine the physical condition of an item.
• Feedback Forum
• Allows registered buyers and sellers to comment
  on their experiences with other individuals.
• Individuals build up their online trading
  reputation.

21
Protecting Against eAuction Fraud(ii)

• Insurance Policy
• eBay offers insurance underwritten by Lloyds of
  London.
• Users are covered up to 200, with a 25
  deductible, without fee.
• Escrow Service
• Procedure
• Buyer mails the payment to the escrow service.
• Alert the seller the payment.
• Seller ships the good to the buyer.
• Buyer inspect the goods, and notify the
  acceptance.
• Escrow service pays the seller.
• eBay recommends recommends escrow service for a
  fee.
• I-Escrow on-line escrow service provider

22
Protecting Against eAuction Fraud (iii)

• Non-payment Punishment
• eBay Policy
• 1st violation friendly warning
• 2nd violation sterner warning
• 3rd violation 30-day suspension
• 4th violation Indefinite suspension
• Appraisal Service
• Estimate the value of an item
• Hard to implement.
• Verification
• Some collectors have their item DNA tagged for
  identification purposes.

23
Auction Comparison Model

• Auction comparison process
• 1. Find it
• 2. Track it
• 3. Win it
• eBays lonely crusade against the shopbots,
• (Businessweek Online, 02/11/2000)
• Biddersedge
• Bid Search Engine
• Allauction.co.kr
• Comparison Search on auctions
• Limited to Yahoo Auction
• Auctionwatch.com
• Shifted to the Solution Provider
• Problem

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eAuction for Procurement

• Status
• Many Companies and Government agencies are
  reengineering their bidding processes and
  procedures
• NASA
• Canada
• Governmental Procurement above 25,000
• Required to use the system MERX
• Boeing Inc.(1997) Found on the Internet vendors
  that charge 10-30 less than what Boeing used to
  pay, and also got the job done faster
• GE TPN (www.tpn.geis.com)
• Market Size Prospect
• Total amount of public purchase requests now
  advertised on the Internet exceeds 400 billion
  annually. (www.bidengine.com)

27
Online Auction Sites
28
Terms in Bidding

• Reserve Price Auction
• Lowest price a seller is willing to sell an item
  for
• If no bid meets the reserve price, the auction is
  cancelled.
• Bid Retraction
• Cancellation of a bid
• Usually a bid is considered as a binding contract
• Auto-snipping
• The act of entering a bid during the very last
  seconds of an auction and outbidding the highest
  bidder
• Auction Express offers a tool to snip items
  automatically
• Auctiontool.com
• Proxybidding
• A software system that operate as a proxy to
  place bids on behalf of the buyers
• Buyer determines the maximum bid, and then place
  the first bid manually.
• Proxy execute the bids trying to keep the bids as
  low as possible

29
Post Auction Follow-ups

• Notification
• Bidding notification to buyers notify the status
  whether they are being outbid or winning in
  auction
• End-of-Auction Notices
• Seller Notices about auction number, item name,
  price, payment preference, mailing address
• Postcards and Thank-you Notes
• Feedback and Rating
• Invoice and Billing

30
Payment Methods

• EFT
• PayByWeb.com, PayPal.com, BidPay.com
• Escrow Service
• The third pary holds a bidders payment in trust
  until the buyer receives and accepts the auction
  item from the seller.
• I-Escrow (iescrow.com), TradeSafte.com,
  Auction.co.kr
• Credit Card Payment
• Person-to-person credit card transaction
• Billpoint.com offers escrows, shipment tracking,
  and fraud protection.
• CCNow.com

31
Shipping and Postage

• Internet Shipping
• Lship.com, Smartship.com, AuctionShip.com
• Internet Postage
• Stamp.com Download the postage, print stampled
  envelopes and labels, and arrange shipment via
  the US Postal Service.

32
Auctions in Private Networks

• Pigs in Singapore and Taiwan
• Cars in Japan Aucnet
• Livestock in Australia

33
Mobile Auction

• Benefits
• Conveniece and ubiquity
• Privacy
• Simpler and faster
• Limitation
• Visual quality
• Memery capacity

34
Trend of Internet Auction

• Auctions at Portal
• Secure Buyer Protection
• Global Reach
• eBay Auction.co.kr
• Agent-based auction Research

35
References

• Albert Pang, Internet Commerce Procurement
  Application Market Review, Forecast, and User
  Trends, 1998-2003, IDC19662, August1999
• Arie Segev and Judith Gebauer, Carrie Beam,
  Procurement in the Internet Age-Current
  Practices and Emerging Trends (Results from field
  Study), Fisher CMIT Working Paper WP-98-1033,
  Aug. 1998
• Carrie Beam and Arie Segev, Auctions on the
  Internet A Field Study, Working Paper
  98-WP-1032, Nov.1998.
• Efraim Turban, Jae K. Lee, David King and H.
  Michael Chung, Electronic Commerce a
  managerial perspective, 1999
• Efraim Turban, Auctions and Bidding on the
  Internet An Assessment, Electronic Markets,
  Vol.7, No.4, 1997
• Eric Van Heck and Peter Vervest, How Should CIOs
  Deal with Web-Based Auctions?, Communications of
  the ACM, July 1998/Vol 41. No7
• Jill L. Frankle, Online AuctionsThe New
  E-Commerce Enabler, IDC18872, April 1999
• John-Carol Brigham, Indirect Procurement Over
  the Internet, IDC19143, May 1999
• L. Fickel, Online Auctions Bid Business CIO
  Web Business Magazine, June, 1999
• Michael N. Huhns, Jose M. Vidal, Online
  Auctions, IEEE Internet Computing, May.June
  1999.
• Robert H. Guttman and Pattie Maes,
  Agent-mediated Integrative Negotiation for
  Retail Electronic Commerce, White Paper .
• S. Klein, Introduction to Electronic Auctions,
  Electronic Markets 7, 4, 1997
• ???, ???, ???, A Web-based Auction Mechanism for
  Multi-Agent Environment, 1999
• ???, ???, ??? ????? ??? ??, ?????, 1997.7.1
• ???, ???, ?????? ?????, ?????, 1997.7.15
• ????, ???????, 1999, ???
• ???, ???, ?? ?? EDI? ????? ?? ??, 1999
• ???, ???,???, ??? ?? ????, 1999

36
References

• Amazon www.news.com/News/Item/0,4,0-35623,00.htm
  l
• Arizona Stock Exchange www.azx.com
• Butterfiled Butterfield www.firstauction.com
• Christie www.christies.com
• Dell www.dell.com
• eBay www.news.com/News/Item/0,4,0-35623,00.html
• eBay www.ebay.com/aw
• eCo www.commerce.net/projects/currentprojects/eco
  /
• eMediator ecommerce.cs.wustl.edu/emediator/
• Sellpia www.sellpia.co.kr
• Wa!Auction www.waauction.co.kr
• Auction Ltd. www.auction.co.kr