Auction on the InternetAuction on the InternetAuction on the InternetAuction on the InternetWhat’s Being Auctioned, and How?What’s Being Auctioned, and How?

Chen GeChen Ge

Xu XinXu Xin

Liu XueLiu Xue

Tian TianTian Tian

Queen Ge Mohammed

Princess Candy Mohammed 23 N/A Middle East, Unknown

Merits to auction on the Internet

• Lower cost• More flexibility• Classified advertise

ments

Demerits• Hard to inspect

the goods• Potential problem

of fraud

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

……

Size DistributionMonthly volume($) Number of sites

Under 10,000 83

10,001--100,000 27

100,001--1,000,000 21

Over 1,000,000 7

Size Distribution

Site Monthly Revenue

eBay $70,000,000

First Auction 5,000,000

Onsale 5,000,000

uBid 2,000,000

Going-Going-Sold 1,800,000

Auction Vine 1,500,000

Encore Auction 1,300,000

What to sell• Diversity Software… Books…. Sofas… Washers… …… even…

A Date with an Attractive Woman…

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

What to sell

Category FeaturingSpecializin

g

Collectibles 90 56

Electronics & PCs

48 9

Jewelry 17 1

Software 16 0

Used equipment 15 7

Sporting goods 13 4

Travel Services 7 5

Real Estate 4 2

Wine 3 2

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.

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

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

Time Duration the length of time — average aucti

on remain open --mean 9.3 days per auction --shortest: Onsale’s 60-mins “express auct

ions” and First Auction’s 3-mins “flash auctions”

--longest: 90-days at WW Sales site

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

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

Minimum Bids and Reserve Prices

Effects on the auction --Overuse of high reserve prices

--make the winner upset sometime --drive away bidders

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

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/

Sites Number representativesListing sites 96 eBay, Auction Vine

(only qualified sellers)…

Merchant sites

25 Onsale, First Auction

Combined agent/merchant sites

11

Not clear 10

Total 142

Auctioneers’ FeesMerchant 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%

Auction FeesAt 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.

Auction FormatsAuction Formats

Auction FormatsAuction Formats

English ascendin

g

Dutch ascending

Sealed-bid ascending

Double Auction

Total

Number of sites 121 3 21 4 142

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.

English Auctions ProcedureFind 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

English Auction Game

Two biddersBid first

Bid second

Bid first 5, 5 0, 10

Bid second 10, 0 5, 5

English Auction Game

Two alternatives:-short “extension period” Most are 5 minutes long, this damages the asynchro

nous bidding convenience-“proxy bidding” mechanismEveryone 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.

Sealed-bid AuctionsTwo types:1.First-price sealed-bid auctionwinning bidder pays his bid amount. 7 sites and

8 more

2.Second-price sealed-bid auctionthe winning bidder pays one increment over the

second-highest bid received. In 5 sites.

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.

Double AuctionsFast Parts-electronic components, only successfully on

LabX-laboratory equipment

Dallas Gold & Silver Exchange (DGSE)-jewelry

BidNask-no active trading floors

Double AuctionFastParts

Listing of both “parts for sale” & “parts wanted to buy”

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

-Multi-unit Auctions:many people bid for many identical goods.

Multi-Unit Pricing Rules in Ascending-Bid Auctions

Two pricing rules:

-Discriminatory or pay-your-bid ruleeach winning bidder pays the amount of her own bid; mainly

used at the merchant sites

-Uniform price ruletypically 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

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.

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

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.

Cheat & Game-Strategic Manipulations:1) Shilling:An attempt by the seller to drive up the price of

good.“Overshoot” & “Retract”

Anti-shilling rule

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

Cheat & Game-FraudHow does a buyer know she can trust the seller?

1) Social norm of honesty: people are basically good

2) File formal complaints with Attorneys General or the U.S. Post Office

3) Feedback and rating system4) Third-party escrow service (i-Escrow)

Cheat & Game-FraudHow 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.

Case & Data

Yahoo!, Amazon Vs. eBay

Case & DataSize estimates for eBay, Yahoo!, and Amazon,

Summer 1999

(estimated standard errors in parentheses)

　 Auctions closing per dayRevenues per

month

eBay 340,000 $190,000,000

($180,000,000)

Yahoo! 88,000 $19,000,000

($7,900,000)

Amazon 10,000 $2,000,000

　 　 ($620,000)

Case & Data

　

eBay Yahoo! Amazon

differences

hard close time

5-min extension

period

10-min extension

period

more data searching

　 　

listing fee no fees listing fee

similarities

categories of goods

fixed-length English auction bidding rules

auction-listing procedures

ConclusionMerits• Lower cost• More flexibility• Classified advertisements

Demerits• Shilling & Bid-shielding• Fraud

Questions1) Whether high ratings affects bidders’

willingness to pay for an item?

2) How can i-escrow get a larger transaction size and a higher growing rate than eBay has?

Thank you!