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ONLINE AUCTIONS

Topic 7

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Consumer power is changing the way the world shops –

• Search

• Product information

• Price comparison

Online auctions offer an alternative service

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Two broad categories of auctions

• 3rd party• direct – bricks and mortar

Particular interest in 3rd party

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Other auction sites:

Yahoo

TaoBao – 72% of China $1.7 Billion in auctions

Stuff.com.au

New Zealand

Greysonline

And the weird

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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.

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Early research emphasis on online cost reduction over brand based

differentiation (Gilmore 1999)

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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

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‘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’

TRUST

• Auctions all have buyer/seller feedback• Useful but not always reliable• Need to manage risk

VIDEO

eBay example

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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)

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‘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?

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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.

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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

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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

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Fluidity of pricing

Different individuals are often willing to pay more or less for the same product, leading to fluidity of pricing.

May benefit sellerReality 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.

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Tools and services

• Seller on-ramp http://pages.ebay.com/startselling

• Seller central• www.paypal.com• My eBay• Want it now

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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.