november 8, 2001 jae kyu lee
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November 8, 2001
Jae Kyu Lee
Graduate School of Management
Korea Advanced Institute of Science and Technology
Auctions and Reverse Auctions
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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)
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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
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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
Source : Modified from Klein (1997)
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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.
Source : Modified from Klein (1997)
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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
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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
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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
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Computerized Auction Clock for Dutch Flower Auction
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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
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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)
Source : Carrie Beam, and Arie Segev, Fisher CMIT Working Paper, Nov. 1998
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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
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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
Source : Carrie Beam, and Arie Segev, Fisher CMIT Working Paper, Nov. 1998
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%)
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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
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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)
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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.
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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
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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.
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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
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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.
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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
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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)
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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
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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
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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
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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
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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.
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Auctions in Private Networks Pigs in Singapore and Taiwan Cars in Japan: Aucnet Livestock in Australia
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Mobile Auction Benefits
Conveniece and ubiquity Privacy Simpler and faster
Limitation Visual quality Memery capacity
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Trend of Internet Auction Auctions at Portal Secure Buyer Protection Global Reach
eBay + Auction.co.kr Agent-based auction: Research
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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
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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