Managing Online AuctionsExpanded Capability

Unit 8-3

Managing the Digital Enterprise

Pinker, Seidmann, and Vakrat

Expanded capabilities

• Reduced transaction costs for both buyers and sellers

• Accessibility to more participants, both bidders and sellers

• Easier description of complex products• The ability to conduct complex auctions• Easier collection of data about auctions• The possibility for participants to join at

any time

Reduced Transaction Costs

• Mass-market goods that seemed to be best sold using posted prices are now sold over the Internet through B2C auctions

• Firms selling products with less uncertainty about their value, and firms selling products of lower value, now find auctions more viable than before

• The Internet allows sellers and bidders to track progress in real time and to search for products at a relatively low cost using software tools

• The success of C2C auction sites like eBay and the low value of many of the items sold there demonstrate that the transaction costs of Internet auctions are low for both buyers and sellers

Accessibility

• The Internet is expanding the space of auctionable goods is by making participation easier, increasing the pool of potential bidders

• Online auctions make it easier to establish new markets in which multiple sellers transact with multiple buyers for the same goods– E-trading markets for securities– the creation of specialized vertical market exchanges

• Because the Internet is drawing on a broad spectrum of participants, the participants in e-markets are less likely to be familiar with each other than participants in traditional markets, so the formalism of a public auction takes on greater importance

Managing Complexity

• Computerization and the use of the Internet make more complex auctions possible

• The computational power of online auctions also allows the auction of complex bundles of goods and services that would otherwise be sold individually or through negotiations

• Computational advances are improving the multimedia capabilities of the Internet, improving the ability to describe more complex products and further expanding the scope of products that can be auctioned

Information Gathering

• Computerization also makes it much easier to collect data on auctions and participants

• By examining auction data, it is possible to learn how different consumers value a particular product and, therefore, how to price it

• In reverse auction settings, a seller’s costs and indications of product demand can be ascertained

• Information on the behavior of participants in an auction can be used to design better future auctions, and in and of itself may have commercial value

Time Element

• Bidders in online auctions are not required to be collocated, so online auctions can be longer than traditional auctions

• Bidders can easily join the auction at any time by visiting the correct website

• Online auction designers must pay attention to how decisions they make influence the participation behavior of consumers over time