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CS5038 The Electronic SocietyLecture 6: Auctions and Other ServicesLecture 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

had2. 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 eBay’s 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, 2002Bartering 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 TypesTypes http://www.agorics.com/Library/auctions.htmlForward – One seller, many buyersReverse – One buyer, many sellers (aka tendering system)Double – Many buyers, many sellers (lower prices usually)

Both bids and asks are allowedMechanismsEnglish 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 auctionedDutch 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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AuctionsBenefits

Quick – especially to liquidate obsolete stock Optimal price for seller If seller is unsure of value Discover buyer’s valuation

Problems Fraud – see slide 7 Reveals buyer’s valuation Winner’s 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 SupportPhase 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 bidding—software 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 FraudTypes 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 claims—buyers 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 Lloyd’s of London Escrow services - escrow.com

Third party holds funds until buyer receives and inspects Non-payment punishment

eBay - Suspends winners who don’t pay

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SummaryTypes 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." - AmazonExamples:

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”