November 8, 2001 Jae Kyu Lee

November 8, 2001

Jae Kyu Lee

([email protected])

Graduate School of Management

Korea Advanced Institute of Science and Technology

Auctions and Reverse Auctions

AuctionJae Kyu Lee - 2 -

Composition of eAuction

ItemsAuctioned

ItemsAuctioned

TradingRules

TradingRules

Execution ProcessExecution Process

Auction

Customer(Buyer)

Customer(Buyer)

AuctioneerAuctioneer

Supplier(Seller)Supplier(Seller)

WWW/IT

Effects

Competing Auctionsand Trade Forms

Source : Modified from Klein (1997)


The Process of eAuction

Seller

RegisterListingFeaturing SchedulingPricingAuction Types

Bidders

AuctionPosted

SearchBid Watch Biddings

Max bid/ Jump BidProxy BiddingMultiple BiddingsBid IncrementCanceling Bid

Bidding NotificationBidder ReportInvoicingShipping

Auction Administrator

Bids completed

Seller Notification

Seller FeedbackFees Payment

Real-time credit card payment to seller

Buyer Feedback

Register


Motivations of eAuctions

Coordinationmechanism Price Discovery

Allocationmechanism

Distributionmechanism

Buyer Role Short-term acquisition Often experts/ Bargain hunting, Bargain hunting,

Supplier Role Short-term allocation Exposing items for

Clearance of inventory

Attention, direct

Auctioneer/IntermediaryRole

Often electronic Achieve high breadth Limited role

of resources, e.g.,for demand peaks,auction as amechanism toachieve anequilibrium

of resources, loadbalance

auction withoutauctioneer

Professionalcollectors tryingto acquire rareitems at areasonableprice

sale to a charity,sufficient breadthof demand, hopefor a high price

and depth of theauctions, hightrading volumeresults in high returns,competitive advantageover other auctions

Achieve high breadthand depth of theauctions, hightrading volumeresults in high returns,competitive advantageover other auctions

gamblingmotive

Gamblingmotive,Possible sidemotive: charity

sale channel,public relations;possible sidemotive: charity

because of supplier-buyrelation;possible function asservice providerfor thesupplier side



Impact of Web-based Auction

Parameter Impact of the Web

Auctioneer

Access Rules

Item auctioned

Lower entry barriers; opportunity for direct sales.

Customizable; Theoretically millions of potential customers can be reached.

Focused product segments can be auctioned off; the technologyextend the complexity of the product description.

Trading Rules The trading rules reflect the lack of a guaranteed service.

Execution process For digital products the entire trading cycle can be handledon the Web;

For physical products the trading processand the physical logistics of the trade objects can be separated, leading to a reduction of costs.



Web based Auctions

Source : Eric Van Heck, and Peter Vervest, Communications of the ACM july 1998/Vol. 41, No. 7

One Many

One Negotiations

using EDI Forword

(Sales) Auctions

Selle

r

Many

Reverse

(Procurement) Auctions

Double Auctions

Negotiations using EDI: B2B EDI Web-based (Sales) Forward Auctions : eBay, Auction.co.kr Web-based (Procurement) Reverse Auctions : Priceline.com Web-based Double Auctions : Stock Exchanges (Arizona Stock Exchange closed www.azx.com)

Buyer


Contrast of Traditional and Internet Auction

Traditional Auction Internet Auction

Types of items

High antiques, agricultural products, special items; Limited number of items

Low necessities, surplus stocks, used items; Variety of items

Value Subjective Objective Efficiency Limited by time and space Free from time and space

Fee High Low Privacy Exposed Less exposed

Information Collection

Objective information collection difficult

Objective information collection easy

Inspection Visual Inspection on site is possible

Trust by brand necessary


Types of Auctions

Auction English Auction : Ascending Auction

Dutch Auction : Descending Auction

Sealed Bid Auction First Price Sealed Bid Auction

Second Price Sealed Bid Auction

Double Auction (vs. Single Auction) Continuous Double Auction

Many sellers and auctioneer prices online

Sealed Double Auction (Vickrey Auction) Many sellers and buyers bid simultaneouslly


Computerized Auction Clock for Dutch Flower Auction


Items in Auctions

Traditional % of sites selling items

Internet % of sites selling items

1 Others 54% Computer 61% 2 Collectibles 33% Information 61% 3 Arts and Crafts 25% Others 61% 4 Computer 17% Consumer Products 44% 5 Consumer Products 17% Collectibles 39% 6 Automotives 13% Automotives 33% 7 Sports equipments/

Memorabilia 13% Recreation/ Travel 33%

8 Food and Beverages 4% Antiques 28% 9 Information 4% Real Estate 22% 10 Antiques 4% Money 17%

Source : Carrie Beam, and Arie Segev, Fisher CMIT Working Paper, Nov. 1998


Use Level by Auction Types

Type of Auctions % Sites

English 85 eBay, egghead, Auction.co.kr, eSellpia and most auction sites

First Price Sealed Bid 7 The Chicago Wine Company; Timeshare Resale International

Dutch 4 Klik-Klok Department Store; Bookbid

Vickrey 1 Antebellum Covers (www.antebellumcovers.com)

Continuous Double Auction

1 Auction Depot (www.auctiondepot.com)

Sealed Double Auction 1 Fastparts (www.fastparts.com)



Business Models of eAuctions

Pure-play Internet companies Mainly for Customer-to-Customer Multitude of item; low price items

Auction Ltd., (www.auction.co.kr), eSellpia (www.esellpia.co.kr) eBay (www.ebay.com), egghead and ONSALE (www.onsale.com),

Vertical Auction (or Auction Vortal) Click and Mortar of traditional auctioneer Mainly Business-to-Customer Speialized items; high price items Build Community

Sotheby (www.sothebys.com) : paints Butterfiled & Butterfield (www.firstauction.com) : jewelry, paints, furnitures Christie (www.christies.com) : paints, automobiles TechSmart: Specialized in used or outdated PCs in a B2B auction.

Reverse Auction : Priceline.com, TravelBids.com, FastParts.com


Use Level by Business Models

English First Price Seal Bid

Primary Business 78%; Any items 29%; Any items

Business model 29% C2C53% B2C

15% C2C71% B2C

Inventory Model 22% Very Virtual 55% Mixed22% Traditional

0% Virtual72% Mixed29% Very Traditional

Doing it Right9% Very High16% High14% Low

0% Very High14% High43% Low


Items

Any Items: 74%

Specicalty: 13%

Use Agents: 7%

Business Model C2C (52%) : e.g.) eBay, Auction Ltd.B2C (25%) : e.g.) Zauction, Auction Ltd.B2B (6%) : e.g.) Industrialbid,B2C & B2B (16%)


eAuction Sites

CompanyeBay

Opens

Members

# Items

Fee

Payments

Delivery Cost

1995.5

37.6 M(Nov, 2001)

2000 K

Sale : 1.25-5%Register : $0.2-2

Online Credit

Seller Pays

Onsale/Egghead

End of 1995

Merged

1290 K

Sale: 1.25-5%Register : $0.2-2

Online Credit

Auction Ltd

1998.4

4.3 M(Nov, 2001)

100 K

Sales(Free, Fee for Value Add)

Online Credit

Seller Pays

Wa!Auction

1999.9

closed

20 K

Sale: 3%

Online Credit

-

Sellpia

1999.10.15

260M(Nov, 2001)

20 K

Sales(Free, Fee for Value Add)

Online Credit

Seller Pays

www.ebay.com www.onsale.com www.auction.co.kr www.waauction.co.kr www.sellpia.co.kr

Types Portal Vertal Portal Reverse Auction Auction Hub

Stock Price 57$

Merged to eqghead$99/32

(March 2000)15,500 Won

Seller Pays


B2B Auctions

Independent Auctions : Company use a third-party auctioneer to create the site and sell the goods e.g. www.fairmarket.com, www.imxexchange.com, www.auctiongate.com

Commodity Auctions : Buyers and Sellers come together to a third-party Web site. Access Energy, Utilities, and Telecommunications or Dutch flower market e.g. www.band-x.com, www.metalsite.net, www.fastparts.com

Private Auctions : Open the Auction Market privately e.g.Ingram(www.auctionblock.com)

-Source : Forrest Research, Fickel (1999)


Fraud Problems in Auctions 87% of Internet fraud accounts for eAuction.

(Internet Fraud Watch fraud.org/internet) 9 out of 10 Internet-related complaints registered are concerned

with auction fraud.(National Consumer League’s National Fraud Information Center)

Average auction loss is US$248 per complaint. US$1.1 million was lost due to the fraudulant activities.


Types of eAuction Fraud Bid Shielding

Use of some phantom bidders to bid at very high price when the auction begins. Then at the last hour, the phantom bidders pull out, and one bidder with a very low price will win.

Shilling Sellers arrange to have fake bids places on their item to artificially

jack up high bids on their item. Fake Photos and Misleading Descriptions Improper Grading Techniques Selling Reproduction High Shipping Costs and Handling Fees Failure to Ship Mechandise Loss and Damage Claims Switch and Return


Protecting Against eAuction Fraud

eBay’s measures Only 27 out of every 1,000,000 transactions at eBay were fraudulent

in 2000. User Identity Verification

eBay uses the services of Equifax to verify user identity for a $5 fee. Authentication Service

Determine whether an item is genuine and described appropriately. Authenticator service for a fee.

Grading Service Determine the physical condition of an item.

Feedback Forum Allows registered buyers and sellers to comment on their

experiences with other individuals. Individuals build up their online trading reputation.


Protecting Against eAuction Fraud(ii)

Insurance Policy eBay offers insurance underwritten by Lloyd’s of London. Users are covered up to $200, with a %25 deductible, without

fee. Escrow Service

Procedure Buyer mails the payment to the escrow service. Alert the seller the payment. Seller ships the good to the buyer. Buyer inspect the goods, and notify the acceptance. Escrow service pays the seller.

eBay recommends recommends escrow service for a fee. I-Escrow: on-line escrow service provider


Protecting Against eAuction Fraud (iii)

Non-payment Punishment eBay Policy

1st violation: friendly warning 2nd violation: sterner warning 3rd violation: 30-day suspension 4th violation: Indefinite suspension

Appraisal Service Estimate the value of an item Hard to implement.

Verification Some collectors have their item ‘DNA tagged’ for

identification purposes.


Auction Comparison Model Auction comparison process

1. Find it2. Track it3. Win it

eBay’s lonely crusade against the shopbots, (Businessweek Online, 02/11/2000)

Biddersedge Bid Search Engine

Allauction.co.kr Comparison Search on auctions Limited to Yahoo Auction

Auctionwatch.com Shifted to the Solution Provider

Problem - Winner’s Curse


eAuction for Procurement Status

Many Companies and Government agencies are reengineering their bidding processes and procedures

NASA Canada :

Governmental Procurement above $25,000 Required to use the system MERX

Boeing Inc.(1997): Found on the Internet vendors that charge 10-30% less than what Boeing used to pay, and also got the job done faster

GE TPN (www.tpn.geis.com) Market Size Prospect

Total amount of public purchase requests now advertised on the Internet exceeds $400 billion annually. (www.bidengine.com)


Online Auction SitesCountry Auction Sites URL Fee (2000) evel

USA BIDCAST http://www.bidcast.com Charge

BIDLINE http://www.bidline.com Charge

BIDNET http://www.bidnet.com Charge

CBDNet http://cbdnet.access.gpo.gov Charge

COS http://cos.gdb.org Charge

Federal Marketplace http://www.fedmarket.com Charge

GOVCON http://www.govcon.com Charge

GPO http://www.access.gpo.gov Free

Canada MERX http://www.merx.cebra.com Charge

BIDS http://www.bidservices.com Charge

Japan JETRO http://www.jetro.go.jp Free

Europe EGCC http://members.ao1.com/eurocom Charge

TED(ECHO) http://www2.echo.lu Charge

EPIN http://epin1.epin.ie Charge

Hong Kong GSD http://www.info.gov.hk/gsd Free

Australia GEMS http://www.gems.gov.au Free

New Zealand GETS http://www.gems.gov.au/nzgets Free


Terms in Bidding Reserve Price Auction

Lowest price a seller is willing to sell an item for If no bid meets the reserve price, the auction is cancelled.

Bid Retraction Cancellation of a bid Usually a bid is considered as a binding contract

Auto-snipping The act of entering a bid during the very last seconds of an auction and

outbidding the highest bidder Auction Express offers a tool to snip items automatically Auctiontool.com

Proxybidding A software system that operate as a proxy to place bids on behalf of the

buyers Buyer determines the maximum bid, and then place the first bid manually. Proxy execute the bids trying to keep the bids as low as possible


Post Auction Follow-ups Notification

Bidding notification to buyers: notify the status whether they are being outbid or winning in auction

End-of-Auction Notices Seller Notices about auction number, item name, price, payment

preference, mailing address Postcards and Thank-you Notes

Feedback and Rating Invoice and Billing


Payment Methods

EFT PayByWeb.com, PayPal.com, BidPay.com

Escrow Service The third pary holds a bidder’s payment in trust until the buyer

receives and accepts the auction item from the seller. I-Escrow (iescrow.com), TradeSafte.com, Auction.co.kr

Credit Card Payment Person-to-person credit card transaction Billpoint.com offers escrows, shipment tracking, and fraud

protection. CCNow.com


Shipping and Postage Internet Shipping

Lship.com, Smartship.com, AuctionShip.com Internet Postage

Stamp.com: Download the postage, print stampled envelopes and labels, and arrange shipment via the US Postal Service.


Auctions in Private Networks Pigs in Singapore and Taiwan Cars in Japan: Aucnet Livestock in Australia


Mobile Auction Benefits

Conveniece and ubiquity Privacy Simpler and faster

Limitation Visual quality Memery capacity


Trend of Internet Auction Auctions at Portal Secure Buyer Protection Global Reach

eBay + Auction.co.kr Agent-based auction: Research


References Albert Pang, “ Internet Commerce Procurement Application Market Review, Forecast, and User Trends, 1998-

2003, IDC#19662, August1999 Arie Segev and Judith Gebauer, Carrie Beam, “Procurement in the Internet Age-Current Practices and Emerging

Trends (Results from field Study), Fisher CMIT Working Paper WP-98-1033, Aug. 1998 Carrie Beam and Arie Segev, “Auctions on the Internet: A Field Study,” Working Paper 98-WP-1032, Nov.1998. Efraim Turban, Jae K. Lee, David King and H. Michael Chung, “Electronic Commerce : a managerial perspective”,

1999 Efraim Turban, “Auctions and Bidding on the Internet : An Assessment”, Electronic Markets, Vol.7, No.4, 1997 Eric Van Heck and Peter Vervest, “How Should CIOs Deal with Web-Based Auctions?,” Communications of the

ACM, July 1998/Vol 41. No7 Jill L. Frankle, “Online Auctions:The New E-Commerce Enabler”, IDC#18872, April 1999 John-Carol Brigham, “Indirect Procurement Over the Internet”, IDC#19143, May 1999 L. Fickel, “Online Auctions: Bid Business” CIO Web Business Magazine, June, 1999 Michael N. Huhns, Jose M. Vidal, “Online Auctions,” IEEE Internet Computing, May.June 1999. Robert H. Guttman and Pattie Maes, “Agent-mediated Integrative Negotiation for Retail Electronic Commerce,”

White Paper . S. Klein, “Introduction to Electronic Auctions”, Electronic Markets 7, #4, 1997 이승현 , 서의호 , 윤영수 , “A Web-based Auction Mechanism for Multi-Agent Environment”, 1999 이재규 , 이웅규 , “ 지능형 에이전트에 기반한 입찰 ,” 컴퓨터월드 , 1997.7.1 이재규 , 이웅규 , “ 전자상거래와 경매시스템 ,” 컴퓨터월드 , 1997.7.15 이재규외 , “ 전자상거래원론” , 1999, 법영사 이준한 , 문태수 , “ 정부 조달 EDI 의 확산방안에 관한 연구 , 1999 전호일 , 한유경 , 이재범 , “ 인터넷 경매” 사례연구 , 1999


References

Amazon : www.news.com/News/Item/0,4,0-35623,00.html Arizona Stock Exchange: www.azx.com Butterfiled & Butterfield: www.firstauction.com Christie: www.christies.com Dell: www.dell.com eBay: www.news.com/News/Item/0,4,0-35623,00.html eBay : www.ebay.com/aw eCo: www.commerce.net/projects/currentprojects/eco/ eMediator: ecommerce.cs.wustl.edu/emediator/ Sellpia : www.sellpia.co.kr Wa!Auction : www.waauction.co.kr Auction Ltd. : www.auction.co.kr

November 8, 2001 Jae Kyu Lee

Documents

Transcript of November 8, 2001 Jae Kyu Lee