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

1(#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  
2(#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 eBays business Introduced seller protection in 2002  Bad cheques  Credit card fraud Initially C2C, but in 2002 introduced Business Marketplace 3(#total)  http://pages.ebay.com/businessmarketplace/

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 4(#total)  Products and services may be bundled and customised

Auction Types
Types http://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 5(#total) financial communities as a Dutch auction

Auctions
Benefits  Quick especially to liquidate obsolete stock  Optimal price for seller  If seller is unsure of value  Discover buyers valuation Problems  Fraud see slide 7  Reveals buyers valuation  Winners 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 6(#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 biddingsoftware 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 payment7(#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 claimsbuyers claim they never received an item or received it in damaged condition, request a refund
8(#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 Lloyds of London

 Escrow services - escrow.com

 Third party holds funds until buyer receives and inspects

 Non-payment punishment
 eBay - Suspends winners who dont pay
9(#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
10(#total)

11(#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), Yahoo! and Google (web search), Amazon (retail) Netflix (video rental).

 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
12(#total)