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CS5038 The Electronic Society

• Lecture 6 Auctions and Other Services
• Lecture 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
• 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 had
• Google IPO September 2004 Dutch Auction on
  Internet
• Generated more money
• Fair distribution of shares (allegedly!)
• 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
  eBays 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, 2002

• Bartering 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 Types

• Types http//www.agorics.com/Library/auctions.html
  
• Forward One seller, many buyers
• Reverse One buyer, many sellers (aka tendering
  system)
• Double Many buyers, many sellers (lower prices
  usually)
• Both bids and asks are allowed
• Mechanisms
• English 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 auctioned
• Dutch 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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Auctions

• Benefits
• Quick especially to liquidate obsolete stock
• Optimal price for seller
• If seller is unsure of value
• Discover buyers valuation
• Problems
• Fraud see slide 7
• Reveals buyers valuation
• Winners 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 Support

• Phase 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 biddingsoftware 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 Fraud

• Types 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 claimsbuyers 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 Lloyds of
  London
• Escrow services - escrow.com
• Third party holds funds until buyer receives and
  inspects
• Non-payment punishment
• eBay - Suspends winners who dont pay

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Summary

• Types 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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12
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." - Amazon
• Examples
• Ecast - digital jukebox gt150,000 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 -gt viable to sell relatively
  unpopular products
• e.g. online store
• Costs high -gt 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