WEB AUCTIONS STRATEGIES

Online auctions provide a business opportunity They charge both buyers and sellers to participate and it can sell advertising on its pages People interested in specific items can form a market segment that advertisers will pay

extra to reachAuction

Here sellers offer an item or items for sale but do not put a price and hence known as “putting an item up for bid” or “putting an item on the block”

Potential buyers are given about the item examines it and offers bid The whole auction process is managed by an auctioneerTypes:1. English Auction:

Starting from a low price, bidding increases until no bidder is willing to bid higher

Known as ascending-price auction / open auction / open-outcry auction Minimum bid is price at which auction begin and if no bidders are

willing to pay that price, the item is withdrawn Minimum bid is not announced instead sellers can establish a minimum

acceptable price called Reserve Price It offers multiple units of an item for sale and allow bidders to specify

the quantity they want to buy called Yankee Auctions Drawbacks:

1. winning bidder is required to bid a small amount more than next-higher bidder, winning bidder need not bid their full private valuations. Thus sellers will not obtain the maximum possible price.

2. Bidders Risk – In competition bidding sometimes bidding may tend to a value more than private valuations called winners curse

2. Dutch auction : Starts from a high price, bidding automatically decreases until the bidder accepts the price Implemented using a clock that drops the price with each

tick and the first bidder to call stop, stops the clock and becomes winning bidder Advantage for seller : The price will not fall below the

valuation as there will be a fear of losing item to another bidder Adv- moves large number of items quickly Eg: online auction that uses Dutch auction is ColdWater

Creek

Disadv:- many online retailers found that dutch auction did not increase sales or generate interest and caused confusion among their customers 2004- Google used dutch auction to sell its stock to

investors in its initial public offering3.First- Price Sealed Bid Auctions

Secret bidding process Higher bidder pays the amount of the highest bid

4.Second Price Sealed Bid Auction Secret bidding process Highest bidder pays amount of the second highest bid William Vickrey won Nobel price in Economics for his studies of this auction type. Encourages bidders to bid the amounts of their private valuations and protected from

higher bid5.Double Auction(open outcry)

Buyers and sellers declare combined price quantity bids.The auctioneer matches seller offers(lowest to highest) with buyer offers(highest to lowest)

Buyers and sellers can modify bids based on knowledge gained from other bids This auction works well only for items of known quality such as securities or graded

agricultural products6.Double auction(Sealed bid)

Buyers and sellers declare combined price quantity bids. The auctioneer matchs seller offers (lowest to highest) with buyer offers( highest to

lowest) Buyers and sellers cannot modify their bids Eg: New York Stock Exchange

7. Reverse- auction(Seller bid) Multiple sellers submit price bids to an auctioneer that represents a single buyer Bids are given at a given amount of a specific item that a buyer wants to purchase Prices go down as the bidding continues until no seller is willing to bid lower

ONLINE AUCTIONS

3 CATEGORIES

1. GENERAL CONSUMER AUCTIONS: EG: e-bay homepage provides links to categories of items, search box feature to

find a specific item by entering descriptive terms Bottom of the page includes a link to the third party assurance provider TRUSTe

Sellers & buyers must register with ebay and agree to the site’s basic terms of doing business

Sellers pay ebay a listening fee and a sliding percentage of the final selling price Buyers pay nothing to ebay Common format used on ebay is English auction Difference between ebay and English auction is that bidders do not know who

placed the bid until the auction is over Ebay English auction allows sellers to specify that an auction be made private

and here the site never discloses bidder’s identities and the prices they bid. Another type offered by ebay is an increasing-price format for multiple-item

auctions and hence calls for dutch auction2. SPECIALITY CONSUMER AUCTIONS

Meets the needs of market segmentsEg: Cigarbid.com, Golf Club Exchange Identify strong market segment with readily identifiable products desired by people Respond.com offer reverse auctions directed at a consumer market.Here a site

visitore fills out a form that describes the item or service in which he or she is interested.The site the routes the visitor’s request to a group of participating merchants who reply to the visitor by email with offers to supply the item at a particular price. This is called reverse bid.

Group purchasing site is a type of consumer reverse auction.The seller posts an item with a price and individual buyers enter bids on an item and the site can negotiate a better price with the item’s provider and ultimately posted price that decreases as the number of bids increases.

3. BUSINESS-TO-BUSINESS AUCTIONS: Excess inventory is distributed by firms Model 1- Large companies have liquidation specialists who find buyers for these

unusable inventory Model 2-smaller firms sell them to liquidation brokers that finds buyers for these

items Online auctions are logical extension Model 3- resembles consumer online auction.Here new business entity enters a

market that lacked efficiency and creates a site at which buyers and sellers who have not done business with each other can participate in auctions

Eg: Ingram Micro – distributor of computers and related equipment

SUPPLY CHAIN CHARACTERISTICS THAT SUPPORT REVERSE AUCTIONS1. Suppliers are highly competitive2. Product Features can be clearly specified3. Suppliers are willing to reduce the margin they earn on this product

4. Suppliers are willing to participate in reverse auctions

SUPPLY CHAIN CHARACTERISTICS THAT DISCOURAGE REVERSE AUCTION1. Product is highly complex or requires regular changes in design2. Products has customized features3. Long term strategic relationships are important to buyers and suppliers4. Switching costs are high