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

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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

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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
http://pages.ebay.com/businessmarketplace/
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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
Products and services may be bundled and customised
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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 financial
communities as a Dutch auction
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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
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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 payment
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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

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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

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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

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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

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