EAuctions

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E-Auctions
5
chapter
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Learning Objectives

• To understand what an auction is and what it is
  not.
• To understand the auctions potential benefits to
  a buyer and a seller.
• To learn about the different types of auctions
  and how they can affect final outcomes.
• To study the different business models of firms
  that organize auctions.

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Learning Objectives (continued)

• To learn about the different types of consumer
  behavior that manifest themselves in auctions.
• To understand the potential for fraud in auctions
  and to explore ways of limiting it.
• To be exposed to an advanced economic theory of
  auctions.

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Introduction
An auction is a market of buyers and sellers.
Characteristics of an auction include

• Typically, multiple buyers compete to obtain
  one or more items from one seller.
• The bidding process determines the sales price.
• The sales price cannot be predicted with
  certainty by either the buyer or the seller.

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Introduction (continued)
Advantages of online auctions vs. traditional
auctions

• The audience does not have to be physically
  present.
• -- Participants can place bids at any time.
• -- A large audience can be put together on
  short notice.

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Introduction (continued)
Advantages of online auctions vs. traditional
auctions (continued)

• Due to search engines and hierarchy-based
  classification schemes, consumers can easily
  locate auctions for desired products.
• Online auctions create global markets for a
  local product.

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Introduction (continued)
Disadvantages of online auctions vs. traditional
auctions

• Buyers cannot see, touch, or feel products
  before bidding.
• Potential for fraud exists by both the buyer
  and the seller.

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Introduction (continued)
Why do online auctions appeal to buyers?

• They are an entertaining way of buying a
  product.
• Auctions have led to the formation of trading
  communities.

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When Must a Seller Choose Auctions?
Auctions benefit sellers when

• Selling products that are idiosyncratically
  valued.
• One can put together a large group of bidders.

Idiosyncratically? Babie door is useless for man,
but most girls are loving it. Different
perception of different people for value of
something
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Understanding Different Auction Types
Eight types of online auctions exist

• Sealed English
• Auction
• 6. Reverse Auction
• 7. Double Auction
• 8. Anglo-Dutch Auction

1. English 2. Second-Price 3. Dutch 4. Dutch
Auction- Multiple Items
See Table 5.1 for a comparison of auction formats.
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Understanding Different Auction Types
(continued)
Table 5.1 Comparison of Auction Formats
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Understanding Different Auction Types
(continued)
Table 5.1 Comparison of Auction Formats
(continued)
Sealed means that the process is hidden
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Understanding Different Auction Types
(continued)
Table 5.1 Comparison of Auction Formats
(continued)
Source Paul Klemperer, What Really Matters in
Auction Design, February 2001,
http//www.nuff.ox.ac.uk/users/klemperer/design3aw
eb.pdf.
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Understanding Different Auction Types
(continued)
After choosing the auction type, sellers must
make the following decisions

• Setting the reservethe minimum price acceptable.
• Choosing a buyout pricethe price at which an
  auction stops.
• Private versus publicif public, the onus of
  generating traffic is on the auction facilitator
  if private, it shifts to the seller.

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Auction Categories C2C, B2C, and B2B
Table 5.2 Top Auction Sites by Category in
Alphabetical Order
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Bidder Behavior
Sniping and techniques used to prevent sniping

• Sniping Bidders wait until the last few minutes
  to place a bid and because other bidders do not
  have enough time to respond, they better their
  chances of winning.

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Bidder Behavior (continued)
Sniping and techniques used to prevent sniping
(continued)

• Techniques used to prevent sniping
• Offer an automatic extension period in which if
  there is bidding in the last five minutes the
  bidding is automatically extended by five
  minutes.
• Proxy bidding can be used so an individual can
  set up a proxy by specifying the highest price he
  or she is willing to bid. The proxy then bids on
  behalf of the buyer.

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Bidder Behavior (continued)
Shilling, Bid Shielding, and Bid Siphoning

• Shilling is the classic way by which a seller
  increases the price of the sale.
• Bid shielding is the reverse of shilling in that
  it is an attempt by a buyer to ward off other
  bidders to keep the final price low.
• Bid siphoning is when a competing seller contacts
  bidders at an auction and offers to sell them the
  item.

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Fraud
Four Determinants to Fraud

• Micropayment systems are designed for the
  efficient transfer of small amounts of money from
  buyers to sellers to assure sellers of payment
  before shipment.
• Rating systems allow buyers to rate sellers based
  on previous transactions.

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Fraud (continued)
Four Determinants to Fraud

• Escrow systems are intermediaries that obtain
  possession of the item being sold and the money
  to ensure a safe exchange.
• Mediation services have emerged to settle
  disputes arising from auctions.

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Auction Korea Revenue SourceRegistration
transaction fee
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Auction Korea- Revenue SourceOptional Services
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Auction Korea management performance
Total Sales
Source of Sales
Billion KRW)
Credit Card Commission
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Transaction Fee
41
Registration optional services usage fee
47
Charging system 2002.3.17
Charging system2004.3.2
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Discussion Questions!!