Chapter 10
E-Auctions
Electronic Commerce Prentice Hall? 2006 2
Learning Objectives
1,Define the various types of e-auctions and list their
characteristics.
2,Describe the processes involved in conducting forward
and reverse e-auctions.
3,Describe the benefits and limitations of e-auctions.
4,Describe some unique e-auction models.
Electronic Commerce Prentice Hall? 2006 3
Learning Objectives
5,Describe the various services that support e-auctions.
6,Describe the hazards of e-auction fraud and discuss
possible countermeasures.
7,Describe bartering and negotiating.
8,Describe e-auction deployment and implementation
issues.
9,Analyze future directions of mobile e-auctions.
Electronic Commerce Prentice Hall? 2006 4
Fundamentals of
Dynamic Pricing and E-Auctions
auction
Market mechanism by which buyers make bids and
sellers place offers; characterized by the competitive
and dynamic nature by which the final price is reached
electronic auctions (e-auctions)
Auctions conducted online
dynamic pricing
Prices that are determined based on supply and
demand relationships at any given time
Electronic Commerce Prentice Hall? 2006 5
Exhibit 10.1 Types of Dynamic Pricing
Electronic Commerce Prentice Hall? 2006 6
Fundamentals of
Dynamic Pricing and E-Auctions
One Buyer,One Seller
Popular in B2B
– Each party can use negotiation,bargaining,or
bartering
– The resulting price will be determined by:
Bargaining power
Supply and demand in the item’s market
Business-environment factors
Electronic Commerce Prentice Hall? 2006 7
Fundamentals of
Dynamic Pricing and E-Auctions
One Seller,Many Potential Buyers
forward auction
An auction in which a seller offers a product to many
potential buyers
sealed-bid auction
Auction in which each bidder bids only once; a silent
auction,in which bidders do not know who is placing
bids or what the prices are
Vickrey auction
An auction in which the highest bidder wins but pays
only the second-highest bid
Electronic Commerce Prentice Hall? 2006 8
Exhibit 10.2 Types of Forward Auctions
Electronic Commerce Prentice Hall? 2006 9
Fundamentals of
Dynamic Pricing and E-Auctions
One Buyer,Many Potential Sellers
reverse auction
Auction in which the buyer places an item for bid
(tender) on a request for quote (RFQ) system,
potential suppliers bid on the job,with the price
reducing sequentially,and the lowest bid wins; used
mainly in B2B and G2B e-commerce
Electronic Commerce Prentice Hall? 2006 10
Fundamentals of
Dynamic Pricing and E-Auctions
One Buyer,Many Potential Sellers
– B2B Reverse Auctions
– C2C Reverse Auctions
–,Name-Your-Own-Price” Model
“name-your-own-price” model
Auction model in which would-be buyers specify the price
(and other terms) they are willing to pay to any willing
seller; a C2B model,pioneered by Priceline.com
Electronic Commerce Prentice Hall? 2006 11
Fundamentals of
Dynamic Pricing and E-Auctions
Many Sellers,Many Buyers
– Buyers and their bidding prices are matched with
sellers and their asking prices based on the quantities
on both sides and the dynamic interaction between
the buyers and sellers
Electronic Commerce Prentice Hall? 2006 12
Benefits,Limitations,and
Strategic Uses of E-Auctions
Benefits of E-Auctions
– Benefits to Sellers
Increased revenues
Optimal price setting
Removal of expensive intermediaries
Better customer relationships
Liquidation
Lower transaction costs
Lower administrative costs
Electronic Commerce Prentice Hall? 2006 13
Benefits,Limitations,and
Strategic Uses of E-Auctions
Benefits of E-Auctions
– Benefits of E-Auctions to Buyers
Opportunities to find unique items and collectibles
Lower prices
Entertainment
Anonymity
Convenience
Electronic Commerce Prentice Hall? 2006 14
Benefits,Limitations,and
Strategic Uses of E-Auctions
Benefits of E-Auctions
– Benefits to E-Auctioneers
Higher repeat purchases
A stickier Web site
Expansion of the auction business
Electronic Commerce Prentice Hall? 2006 15
Benefits,Limitations,and
Strategic Uses of E-Auctions
Limitations of E-Auctions
– Possibility of fraud
– Limited participation
– Security
– Auction software
– Long cycle time
– Monitoring time
– Equipment for buyers
– Order fulfillment costs
Electronic Commerce Prentice Hall? 2006 16
Benefits,Limitations,and
Strategic Uses of E-Auctions
Strategic Uses of Auctions and Pricing
Mechanisms
– Through dynamic pricing,buyers and sellers are able
to adjust pricing strategies and optimize product
inventory levels very quickly
Suppliers can quickly flush excess inventory and liquidate
idle assets
Buyers may gather the power to procure goods and
services at the prices they desire
Electronic Commerce Prentice Hall? 2006 17
The,Name-Your-Own-Price” C2B Model
Enables consumers to achieve significant
savings by naming their own price for goods and
services
Same concept as C2B reverse auction,in which
vendors bid on a job by submitting offers and the
lowest priced vendor or the one that meets the
buyer’s requirements gets the job
Electronic Commerce Prentice Hall? 2006 18
Exhibit 10.4 The E-Auction Process
Electronic Commerce Prentice Hall? 2006 19
The E-Auctions
Process and Software Support
Phase 1,Searching and Comparing
– Finding When and Where an Item Will Be Auctioned
– Auction Aggregators and Notification
auction aggregators
Companies that use software agents to visit Web
auction sites,find information,and deliver it to
users
– Browsing Site Categories
– Basic and Advanced Searching
Electronic Commerce Prentice Hall? 2006 20
The E-Auctions
Process and Software Support
Phase 2,Getting Started at an Auction
– Registration and Participants’ Profiles
– Listing and Promoting
– Pricing
Phase 3,Bidding
– Bid Watching and Multiple Bids
sniping
Entering a bid during the very last seconds of an
auction and outbidding the highest bidder (in the
case of selling items)
– Proxy Bids
Electronic Commerce Prentice Hall? 2006 21
The E-Auctions
Process and Software Support
Phase 4,Post-auction Follow-Up
– Post-auction activities
Bidding notifications
End-of-auction notices
Seller notices
Postcards and thank-you notes
– User communication
Chat groups
Mailing lists
Message boards
Electronic Commerce Prentice Hall? 2006 22
The E-Auctions
Process and Software Support
Phase 4,Post-auction Follow-Up
– Feedback and ratings
– Invoicing and billing
– Payment methods
P2P transfer service
Escrow service
Credit card payment
– Shipping and postage
Electronic Commerce Prentice Hall? 2006 23
The E-Auctions
Process and Software Support
Additional Terms and Rules
vertical auction
Auction that takes place between sellers and buyers
in one industry or for one commodity
auction vortals
Another name for a vertical auction portal
Electronic Commerce Prentice Hall? 2006 24
Double Auctions,
Bundle Trading,and Pricing Issues
single auction
Auction in which at least one side of the market
consists of a single entity (a single buyer or a single
seller)
double auction
Auction in which multiple buyers and sellers may be
making bids and offers simultaneously; buyers and
their bidding prices and sellers and their asking prices
are matched,considering the quantities on both sides
Electronic Commerce Prentice Hall? 2006 25
Double Auctions,
Bundle Trading,and Pricing Issues
bundle trading
The selling of several related products and/or services
together
Prices in Auctions,Higher or Lower?
– Pricing Strategies in Online Auctions
Sellers have the option to use different auction
mechanisms,such as English,Dutch,sealed-bid first
price,and sealed-bid second price
Buyers should develop a strategy regarding how much to
increase a bid and when to stop bidding
Electronic Commerce Prentice Hall? 2006 26
E-Auction Fraud and Its Prevention
Types of E-Auction Fraud
bid shielding
Having phantom bidders bid at a very high price when
an auction begins; they pull out at the last minute,and
the bidder who bid a much lower price wins
shilling
Placing fake bids on auction items to artificially jack
up the bidding price
Electronic Commerce Prentice Hall? 2006 27
E-Auction Fraud and Its Prevention
Types of E-Auction Fraud
– Fake photos and misleading descriptions
– Improper grading techniques
– Bid siphoning
– Selling reproductions as originals
– Failure to pay
– Failure to pay the auction house
Electronic Commerce Prentice Hall? 2006 28
E-Auction Fraud and Its Prevention
Types of E-Auction Fraud
– High shipping costs and handling fees
– Failure to ship merchandise
– Loss and damage claims
– Fake escrow services
– Switch and return
– Other frauds
Electronic Commerce Prentice Hall? 2006 29
E-Auction Fraud and Its Prevention
Protecting Against E-Auction Fraud
– User identity verification
– Authentication service
– Grading services
– Feedback forum
– Insurance policy
– Escrow services
Electronic Commerce Prentice Hall? 2006 30
E-Auction Fraud and Its Prevention
Protecting Against E-Auction Fraud
– Nonpayment punishment
– Appraisal services
– Physical inspection
– Item verification
– Other security services
Electronic Commerce Prentice Hall? 2006 31
Bartering and Negotiating Online
Bartering Online
bartering
The exchange of goods and services
electronic bartering (e-bartering)
Bartering conducted online,usually by a bartering
exchange
Electronic Commerce Prentice Hall? 2006 32
Bartering and Negotiating Online
Negotiation and Bargaining
online negotiation
A back-and-forth electronic process of bargaining until
the buyer and seller reach a mutually agreeable price;
usually done by software (intelligent) agents
Electronic Commerce Prentice Hall? 2006 33
Bartering and Negotiating Online
Negotiation and Bargaining
– Technologies for Electronic Bargaining
1,Search
2,Selection
3,Negotiation
4,Continuing selection and negotiation
5,Transaction completion
Electronic Commerce Prentice Hall? 2006 34
Issues in E-Auction Implementation
Using Intermediaries
– The following are some of the popular third-party
auction sites:
General sites
Specialized sites
B2B-oriented sites
Using Trading Assistants
Auction Rules
Electronic Commerce Prentice Hall? 2006 35
Issues in E-Auction Implementation
Strategic Issues
Auctions in Exchanges
Infrastructure for E-Auctions
– Building Auction Sites
Auctions on Private Networks
– Pigs in Singapore and Taiwan
– Livestock in Australia
Electronic Commerce Prentice Hall? 2006 36
Exhibit 10.6 Integrated Auction
Business Model
Electronic Commerce Prentice Hall? 2006 37
Exhibit 10.7 Auctioning Pigs in Singapore
Electronic Commerce Prentice Hall? 2006 38
Mobile E-Auctions
and the Future of Auctions
Benefits and Limitations of Mobile Auctions
– Benefits
Convenience and ubiquity
Privacy
Simpler and faster
– Limitations
Visual quality
Memory capacity
Security
Electronic Commerce Prentice Hall? 2006 39
Mobile E-Auctions
and the Future of Auctions
The Future of E-Auctions
– Global Auctions
– Selling Art Online in Real-Time Auctions
– Strategic Alliances
Electronic Commerce Prentice Hall? 2006 40
Managerial Issues
1,Should we have our own auction site or use a
third party site?
2,What are the costs and benefits of auctions?
3,What auction strategies would we use?
4,What about support services?
Electronic Commerce Prentice Hall? 2006 41
Managerial Issues
5,What would we auction?
6,What is the best bartering strategy?
7,How can we promote our auction?
8,Should we combine auctions with other models?
Electronic Commerce Prentice Hall? 2006 42
Summary
1,The various types of auctions and their
characteristics.
2,The processes of forward and reverse auctions.
3,Benefits and limitations of auctions.
4,Unique auction models.
Electronic Commerce Prentice Hall? 2006 43
Summary
5,Services that support auctions.
6,Hazards of e-auction fraud and
countermeasures.
7,Bartering and negotiating.
8,Auction deployment and implementation.
9,Future directions and the role of mobile auctions.
E-Auctions
Electronic Commerce Prentice Hall? 2006 2
Learning Objectives
1,Define the various types of e-auctions and list their
characteristics.
2,Describe the processes involved in conducting forward
and reverse e-auctions.
3,Describe the benefits and limitations of e-auctions.
4,Describe some unique e-auction models.
Electronic Commerce Prentice Hall? 2006 3
Learning Objectives
5,Describe the various services that support e-auctions.
6,Describe the hazards of e-auction fraud and discuss
possible countermeasures.
7,Describe bartering and negotiating.
8,Describe e-auction deployment and implementation
issues.
9,Analyze future directions of mobile e-auctions.
Electronic Commerce Prentice Hall? 2006 4
Fundamentals of
Dynamic Pricing and E-Auctions
auction
Market mechanism by which buyers make bids and
sellers place offers; characterized by the competitive
and dynamic nature by which the final price is reached
electronic auctions (e-auctions)
Auctions conducted online
dynamic pricing
Prices that are determined based on supply and
demand relationships at any given time
Electronic Commerce Prentice Hall? 2006 5
Exhibit 10.1 Types of Dynamic Pricing
Electronic Commerce Prentice Hall? 2006 6
Fundamentals of
Dynamic Pricing and E-Auctions
One Buyer,One Seller
Popular in B2B
– Each party can use negotiation,bargaining,or
bartering
– The resulting price will be determined by:
Bargaining power
Supply and demand in the item’s market
Business-environment factors
Electronic Commerce Prentice Hall? 2006 7
Fundamentals of
Dynamic Pricing and E-Auctions
One Seller,Many Potential Buyers
forward auction
An auction in which a seller offers a product to many
potential buyers
sealed-bid auction
Auction in which each bidder bids only once; a silent
auction,in which bidders do not know who is placing
bids or what the prices are
Vickrey auction
An auction in which the highest bidder wins but pays
only the second-highest bid
Electronic Commerce Prentice Hall? 2006 8
Exhibit 10.2 Types of Forward Auctions
Electronic Commerce Prentice Hall? 2006 9
Fundamentals of
Dynamic Pricing and E-Auctions
One Buyer,Many Potential Sellers
reverse auction
Auction in which the buyer places an item for bid
(tender) on a request for quote (RFQ) system,
potential suppliers bid on the job,with the price
reducing sequentially,and the lowest bid wins; used
mainly in B2B and G2B e-commerce
Electronic Commerce Prentice Hall? 2006 10
Fundamentals of
Dynamic Pricing and E-Auctions
One Buyer,Many Potential Sellers
– B2B Reverse Auctions
– C2C Reverse Auctions
–,Name-Your-Own-Price” Model
“name-your-own-price” model
Auction model in which would-be buyers specify the price
(and other terms) they are willing to pay to any willing
seller; a C2B model,pioneered by Priceline.com
Electronic Commerce Prentice Hall? 2006 11
Fundamentals of
Dynamic Pricing and E-Auctions
Many Sellers,Many Buyers
– Buyers and their bidding prices are matched with
sellers and their asking prices based on the quantities
on both sides and the dynamic interaction between
the buyers and sellers
Electronic Commerce Prentice Hall? 2006 12
Benefits,Limitations,and
Strategic Uses of E-Auctions
Benefits of E-Auctions
– Benefits to Sellers
Increased revenues
Optimal price setting
Removal of expensive intermediaries
Better customer relationships
Liquidation
Lower transaction costs
Lower administrative costs
Electronic Commerce Prentice Hall? 2006 13
Benefits,Limitations,and
Strategic Uses of E-Auctions
Benefits of E-Auctions
– Benefits of E-Auctions to Buyers
Opportunities to find unique items and collectibles
Lower prices
Entertainment
Anonymity
Convenience
Electronic Commerce Prentice Hall? 2006 14
Benefits,Limitations,and
Strategic Uses of E-Auctions
Benefits of E-Auctions
– Benefits to E-Auctioneers
Higher repeat purchases
A stickier Web site
Expansion of the auction business
Electronic Commerce Prentice Hall? 2006 15
Benefits,Limitations,and
Strategic Uses of E-Auctions
Limitations of E-Auctions
– Possibility of fraud
– Limited participation
– Security
– Auction software
– Long cycle time
– Monitoring time
– Equipment for buyers
– Order fulfillment costs
Electronic Commerce Prentice Hall? 2006 16
Benefits,Limitations,and
Strategic Uses of E-Auctions
Strategic Uses of Auctions and Pricing
Mechanisms
– Through dynamic pricing,buyers and sellers are able
to adjust pricing strategies and optimize product
inventory levels very quickly
Suppliers can quickly flush excess inventory and liquidate
idle assets
Buyers may gather the power to procure goods and
services at the prices they desire
Electronic Commerce Prentice Hall? 2006 17
The,Name-Your-Own-Price” C2B Model
Enables consumers to achieve significant
savings by naming their own price for goods and
services
Same concept as C2B reverse auction,in which
vendors bid on a job by submitting offers and the
lowest priced vendor or the one that meets the
buyer’s requirements gets the job
Electronic Commerce Prentice Hall? 2006 18
Exhibit 10.4 The E-Auction Process
Electronic Commerce Prentice Hall? 2006 19
The E-Auctions
Process and Software Support
Phase 1,Searching and Comparing
– Finding When and Where an Item Will Be Auctioned
– Auction Aggregators and Notification
auction aggregators
Companies that use software agents to visit Web
auction sites,find information,and deliver it to
users
– Browsing Site Categories
– Basic and Advanced Searching
Electronic Commerce Prentice Hall? 2006 20
The E-Auctions
Process and Software Support
Phase 2,Getting Started at an Auction
– Registration and Participants’ Profiles
– Listing and Promoting
– Pricing
Phase 3,Bidding
– Bid Watching and Multiple Bids
sniping
Entering a bid during the very last seconds of an
auction and outbidding the highest bidder (in the
case of selling items)
– Proxy Bids
Electronic Commerce Prentice Hall? 2006 21
The E-Auctions
Process and Software Support
Phase 4,Post-auction Follow-Up
– Post-auction activities
Bidding notifications
End-of-auction notices
Seller notices
Postcards and thank-you notes
– User communication
Chat groups
Mailing lists
Message boards
Electronic Commerce Prentice Hall? 2006 22
The E-Auctions
Process and Software Support
Phase 4,Post-auction Follow-Up
– Feedback and ratings
– Invoicing and billing
– Payment methods
P2P transfer service
Escrow service
Credit card payment
– Shipping and postage
Electronic Commerce Prentice Hall? 2006 23
The E-Auctions
Process and Software Support
Additional Terms and Rules
vertical auction
Auction that takes place between sellers and buyers
in one industry or for one commodity
auction vortals
Another name for a vertical auction portal
Electronic Commerce Prentice Hall? 2006 24
Double Auctions,
Bundle Trading,and Pricing Issues
single auction
Auction in which at least one side of the market
consists of a single entity (a single buyer or a single
seller)
double auction
Auction in which multiple buyers and sellers may be
making bids and offers simultaneously; buyers and
their bidding prices and sellers and their asking prices
are matched,considering the quantities on both sides
Electronic Commerce Prentice Hall? 2006 25
Double Auctions,
Bundle Trading,and Pricing Issues
bundle trading
The selling of several related products and/or services
together
Prices in Auctions,Higher or Lower?
– Pricing Strategies in Online Auctions
Sellers have the option to use different auction
mechanisms,such as English,Dutch,sealed-bid first
price,and sealed-bid second price
Buyers should develop a strategy regarding how much to
increase a bid and when to stop bidding
Electronic Commerce Prentice Hall? 2006 26
E-Auction Fraud and Its Prevention
Types of E-Auction Fraud
bid shielding
Having phantom bidders bid at a very high price when
an auction begins; they pull out at the last minute,and
the bidder who bid a much lower price wins
shilling
Placing fake bids on auction items to artificially jack
up the bidding price
Electronic Commerce Prentice Hall? 2006 27
E-Auction Fraud and Its Prevention
Types of E-Auction Fraud
– Fake photos and misleading descriptions
– Improper grading techniques
– Bid siphoning
– Selling reproductions as originals
– Failure to pay
– Failure to pay the auction house
Electronic Commerce Prentice Hall? 2006 28
E-Auction Fraud and Its Prevention
Types of E-Auction Fraud
– High shipping costs and handling fees
– Failure to ship merchandise
– Loss and damage claims
– Fake escrow services
– Switch and return
– Other frauds
Electronic Commerce Prentice Hall? 2006 29
E-Auction Fraud and Its Prevention
Protecting Against E-Auction Fraud
– User identity verification
– Authentication service
– Grading services
– Feedback forum
– Insurance policy
– Escrow services
Electronic Commerce Prentice Hall? 2006 30
E-Auction Fraud and Its Prevention
Protecting Against E-Auction Fraud
– Nonpayment punishment
– Appraisal services
– Physical inspection
– Item verification
– Other security services
Electronic Commerce Prentice Hall? 2006 31
Bartering and Negotiating Online
Bartering Online
bartering
The exchange of goods and services
electronic bartering (e-bartering)
Bartering conducted online,usually by a bartering
exchange
Electronic Commerce Prentice Hall? 2006 32
Bartering and Negotiating Online
Negotiation and Bargaining
online negotiation
A back-and-forth electronic process of bargaining until
the buyer and seller reach a mutually agreeable price;
usually done by software (intelligent) agents
Electronic Commerce Prentice Hall? 2006 33
Bartering and Negotiating Online
Negotiation and Bargaining
– Technologies for Electronic Bargaining
1,Search
2,Selection
3,Negotiation
4,Continuing selection and negotiation
5,Transaction completion
Electronic Commerce Prentice Hall? 2006 34
Issues in E-Auction Implementation
Using Intermediaries
– The following are some of the popular third-party
auction sites:
General sites
Specialized sites
B2B-oriented sites
Using Trading Assistants
Auction Rules
Electronic Commerce Prentice Hall? 2006 35
Issues in E-Auction Implementation
Strategic Issues
Auctions in Exchanges
Infrastructure for E-Auctions
– Building Auction Sites
Auctions on Private Networks
– Pigs in Singapore and Taiwan
– Livestock in Australia
Electronic Commerce Prentice Hall? 2006 36
Exhibit 10.6 Integrated Auction
Business Model
Electronic Commerce Prentice Hall? 2006 37
Exhibit 10.7 Auctioning Pigs in Singapore
Electronic Commerce Prentice Hall? 2006 38
Mobile E-Auctions
and the Future of Auctions
Benefits and Limitations of Mobile Auctions
– Benefits
Convenience and ubiquity
Privacy
Simpler and faster
– Limitations
Visual quality
Memory capacity
Security
Electronic Commerce Prentice Hall? 2006 39
Mobile E-Auctions
and the Future of Auctions
The Future of E-Auctions
– Global Auctions
– Selling Art Online in Real-Time Auctions
– Strategic Alliances
Electronic Commerce Prentice Hall? 2006 40
Managerial Issues
1,Should we have our own auction site or use a
third party site?
2,What are the costs and benefits of auctions?
3,What auction strategies would we use?
4,What about support services?
Electronic Commerce Prentice Hall? 2006 41
Managerial Issues
5,What would we auction?
6,What is the best bartering strategy?
7,How can we promote our auction?
8,Should we combine auctions with other models?
Electronic Commerce Prentice Hall? 2006 42
Summary
1,The various types of auctions and their
characteristics.
2,The processes of forward and reverse auctions.
3,Benefits and limitations of auctions.
4,Unique auction models.
Electronic Commerce Prentice Hall? 2006 43
Summary
5,Services that support auctions.
6,Hazards of e-auction fraud and
countermeasures.
7,Bartering and negotiating.
8,Auction deployment and implementation.
9,Future directions and the role of mobile auctions.