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Auction on the Internet. What ’ s Being Auctioned, and How? Chen Ge Xu Xin Liu Xue Tian Tian. Queen Ge Mohammed. Princess Candy Mohammed. 23. N/A. Middle East, Unknown. Merits to auction on the Internet. Lower cost More flexibility Classified advertisements. Demerits.

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auction on the internet

Auction on the Internet

What’s Being Auctioned, and How?

Chen Ge

Xu Xin

Liu Xue

Tian Tian


Princess Candy Mohammed



Middle East, Unknown

merits to auction on the internet
Merits to auction on the Internet
  • Lower cost
  • More flexibility
  • Classified advertisements
  • Hard to inspect the goods
  • Potential problem of fraud
history of internet auctions
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……
what to sell

A Date with an Attractive Woman…

What to sell
  • Diversity







what to sell10
What to sell


-- 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 sell12
What to sell


--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 sell13
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 sell14
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
Time Duration

the length of time — average auction remain open

--mean 9.3 days per auction

--shortest: Onsale’s 60-mins “express auctions” and First Auction’s 3-mins “flash auctions”

--longest: 90-days at WW Sales site

minimum bids and reserve prices
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 prices17
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 prices18
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 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


Merchant Sites:offers its own merchandise for sale; happens to conduct its transactions through auction;

e.g. Onsale:

Listing-Agent Sites: agent for other sellers, allowing others to register and running the auctions on their behalf;

e.g. eBay:

auctioneers fees
Auctioneers’ Fees

Merchant 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 fees
Auction Fees

At 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.

english auctions
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 procedure
English Auctions Procedure

Find your interested item

-view the current high bid

-decide whether to raise it by filling out your own bid amount


-see the update status (whether you are the highest bidder now)

-(received “outbid notification” email)

Problem: “sniping”

Waiting until the last minute

english auction game28
English Auction Game

Two alternatives:

-short “extension period”

Most are 5 minutes long, this damages the asynchronous bidding convenience

-“proxy bidding” mechanism

Everyone 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 auctions
Sealed-bid Auctions

Two types:

1.First-price sealed-bid auction

winning bidder pays his bid amount. 7 sites and 8 more

2.Second-price sealed-bid auction

the winning bidder pays one increment over the second-highest bid received. In 5 sites.

dutch auctions
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 auctions
Double Auctions

Fast Parts-electronic components, only successfully on

LabX-laboratory equipment

Dallas Gold & Silver Exchange (DGSE)-jewelry

BidNask-no active trading floors

double auction
Double Auction


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

multi unit auctions
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
Multi-Unit Pricing Rules in Ascending-Bid Auctions

Two pricing rules:

-Discriminatory or pay-your-bid rule

each winning bidder pays the amount of her own bid; mainly used at the merchant sites

-Uniform price rule

typically 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
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
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
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
Cheat & Game

-Strategic Manipulations:

1) Shilling:

An attempt by the seller to drive up the price of good.

“Overshoot” & “Retract”

Anti-shilling rule

cheat game39
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”


cheat game40
Cheat & Game


How does a buyer know she can trust the seller?

  • Social norm of honesty: people are basically good
  • File formal complaints with Attorneys General or the U.S. Post Office
  • Feedback and rating system
  • Third-party escrow service (i-Escrow)
cheat game41
Cheat & Game


How does a buyer know she can trust the seller?


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
Case & Data

Yahoo!, Amazon Vs. eBay



  • Lower cost
  • More flexibility
  • Classified advertisements


  • Shilling & Bid-shielding
  • Fraud
  • Whether high ratings affects bidders’ willingness to pay for an item?
  • How can i-escrow get a larger transaction size and a higher growing rate than eBay has?

Thank you!