Auction on the Internet

1. Auction on the Internet What’s Being Auctioned, and How? Chen Ge Xu Xin Liu Xue Tian Tian

2. Queen Ge Mohammed

3. Princess Candy Mohammed 23 N/A Middle East, Unknown

4. Merits to auction on the Internet • Lower cost • More flexibility • Classified advertisements

5. Demerits • Hard to inspect the goods • Potential problem of fraud

6. History of Internet Auctions • Before 1993, text-based internet newsgroups and email discussion lists. • May 1995, Onsale---the earliest Web-based • Sept. 1995, eBay • Later, Yahoo!, Amazon……

7. Size Distribution

8. Size Distribution

9. A Date with an Attractive Woman… What to sell • Diversity Software… Books…. Sofas… Washers… …… even…

10. What to sell Inexpensive -- which would more likely have been seen at garage sales or flea markets rather than at traditional auctions How to find -- classify into categories and sub-categories -- different sites offer different sets of category system

11. What to sell

12. What to sell Collectibles --offered by more than 60% sites --accounted for at least 85% of listings and 75% of revenues in eBay --improve matching of buyers to sellers --high-priced collectibles still remain in “Sotheby”s.

13. What to sell Goods ought to be auctioned --inexpensive collectibles --used goods --small and easy to ship --goods in limited supply and demands is unknown

14. What to sell Goods ought to be auctioned in the future: SERVICES --tickets, hotel reservations, etc. --few site offer the auctions of services nowadays --obstacle: local services vs. global internet

15. Time Duration the length of time — average auction remain open --mean 9.3 days per auction --shortest: Onsale’s 60-mins “express auctions” and First Auction’s 3-mins “flash auctions” --longest: 90-days at WW Sales site

16. Minimum Bids and Reserve Prices Minimum bids --below which no bids will be accepted Reserve prices --if the highest bid doesn’t exceed the amount of the reserve price, then no good will be sold --indicated but not revealed to the bidders in most of the sites

17. Minimum Bids and Reserve Prices Effects on the auction --low-minimum bids, high-reserve prices --generate interest --build bidding momentum --more opportunity to observe the bidding of others --more aggressive bidding

18. Minimum Bids and Reserve Prices Effects on the auction --Overuse of high reserve prices --make the winner upset sometime --drive away bidders

19. Buyout Prices Buyout price/maximum accepted bid level --allow the buyer to buy an early end to the auction by submitting a sufficiently high bid --gain and lose of the buyers and sellers in this kind of activities

20. How???? Merchant Sites:offers its own merchandise for sale; happens to conduct its transactions through auction; e.g. Onsale: http://www.onsale.com/onsale/ Listing-Agent Sites: agent for other sellers, allowing others to register and running the auctions on their behalf; e.g. eBay: http://www.ebay.com/

22. Auctioneers’ Fees Merchant sites derive income directly from the sale of their items -Agent sites derive their operating revenues from fees charged to buyers and sellers; Online fees are much cheaper: -Sotheby’s , e.g. charges for about more than 30% of the final bid price; while eBay charges only around 5%

23. Auction Fees At eBay: -all fees paid by the seller, -two components to the seller’s fees: 1) insertion fee for the auction listing, ranging from $0.25 to $2.00; 2) percentage of the amount of the final bid price, declines with the size of the sale: 5% of amount under $25, 2.5% of additional amount between $25-$1000, 1.25% of additional excess of 1000.

24. Auction Formats

25. English Auctions -Traditional English Auction: In a room, auctioneer: “going…going…gone!” -English Auction on Internet: longer, geographically diverse, no auctioneer. e.g. eBay, auctions end 7 days after they begin.

26. English Auctions Procedure Find your interested item -view the current high bid -decide whether to raise it by filling out your own bid amount -submit -see the update status (whether you are the highest bidder now) -(received “outbid notification” email) Problem: “sniping” Waiting until the last minute

27. English Auction Game Two bidders

28. English Auction Game Two alternatives: -short “extension period” Most are 5 minutes long, this damages the asynchronous bidding convenience -“proxy bidding” mechanism Everyone has a little elf, and he should tell the elf the most he wants to spend and wait it to outbid other elves. most popular now, 65/142 use it.

29. Sealed-bid Auctions Two types: 1.First-price sealed-bid auction winning bidder pays his bid amount. 7 sites and 8 more 2.Second-price sealed-bid auction the winning bidder pays one increment over the second-highest bid received. In 5 sites.

30. Dutch Auctions -Price starts at some relatively high level -Continues until the first bid determines the winner -Price falls down as time goes by -No observation of actual transaction.

31. Double Auctions Fast Parts-electronic components, only successfully on LabX-laboratory equipment Dallas Gold & Silver Exchange (DGSE)-jewelry BidNask-no active trading floors

32. Double Auction FastParts Listing of both “parts for sale” & “parts wanted to buy”

33. Multi-unit Auctions -Previous ones: many people bid for one good. -Multi-unit Auctions: many people bid for many identical goods.

34. Multi-Unit Pricing Rules in Ascending-Bid Auctions Two pricing rules: -Discriminatory or pay-your-bid rule each winning bidder pays the amount of her own bid; mainly used at the merchant sites -Uniform price rule typically called a “Dutch auction” online; each winning bidder pays the amount of the lowest accepted bid; a fairly standard for multi-unit auctions at the listing sites

35. Possibility of Demand Reduction -The bidder will pay every unit the same price of the first price he bid for one unit, thus, there is possibility that he will lie that he only want less than what he really wants. -A mechanism may solve this by making the bidder pays each unit different prices.

36. Open IPO: A Sealed-bid Multi-Unit Auction • Initial public offerings of corporate stock through sealed-bid multi-unit auctions. • Using uniform-price rule, charging the amount of the lowest accepted per-share bid to each of the winning bidders. • Possibility of demand reduction ! !

37. Package Bidding -Bidding on combinations of related items. -the Wine bid online auction of wines: organizes the auctioned wines into groups which might be more valuable to some bidders.

38. Cheat & Game -Strategic Manipulations: 1) Shilling: An attempt by the seller to drive up the price of good. “Overshoot” & “Retract” Anti-shilling rule

39. Cheat & Game -Strategic Manipulations: 2) Bid Shielding: The bidders put in an early lowball bid (say $10), then gets a false ID to put in an extremely high bid (say $500) on the same item. Retract before the end and win at $10. Enforcement of “Bid Shielding” Guarantee

40. Cheat & Game -Fraud How does a buyer know she can trust the seller? • Social norm of honesty: people are basically good • File formal complaints with Attorneys General or the U.S. Post Office • Feedback and rating system • Third-party escrow service (i-Escrow)

41. Cheat & Game -Fraud How does a buyer know she can trust the seller? I-Escrow: Average transaction size is $300; Sales volume grows at a rate of 25% per month. Vs. eBay: average price of a good is $30 and the transaction volume is growing at 12% per month.

42. Case & Data Yahoo!, Amazon Vs. eBay

43. Case & Data

44. Case & Data

45. Conclusion Merits • Lower cost • More flexibility • Classified advertisements Demerits • Shilling & Bid-shielding • Fraud

46. Questions • Whether high ratings affects bidders’ willingness to pay for an item? • How can i-escrow get a larger transaction size and a higher growing rate than eBay has? Thank you!