Page 315 - Electronic Commerce

Chapter 6

ONLI NE AUCTIONS

In many ways, online auctions provide a business opportunity that is perfect for the Web.
An auction site can charge both buyers and sellers to participate, and it can sell
advertising on its pages. People interested in trading specific items can form a market
segment that advertisers will pay extra to reach. Thus, the same kind of targeted
advertising opportunities that search engine sites generate with their results pages are
available to advertisers on auction sites. This combination of revenue-generating
characteristics makes it relatively easy to develop online auctions that yield profits early
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in the life of the project.
One of the Internet’s strengths is that it can bring together people who share narrow
interests but are geographically dispersed. Online auctions can capitalize on that ability
by either catering to a narrow interest or providing a general auction site that has sections
devoted to specific interests.
Online auctions also create a natural social network. Since buyers and sellers
interested in the same products (or product categories) congregate virtually on the
auction site, a critical mass of highly interested participants occurs automatically. Thus,
almost everything you learned about social networks earlier in this chapter applies to the
business of online auctions. Before you learn more about online auctions, the next section
introduces some basic auction terminology and principles.
Auction Basics
The earliest written records of auctions are from Babylon and date from 500 BC. Roman
soldiers used auctions to liquidate the property they took from their vanquished foes.
Auctions became common activities in 17th-century England, where taverns held regular
auctions of art and furniture. The British settlers of the colonies that would become the
United States brought auctions along and used them to sell farm equipment, animals,
tobacco, and, sad to say, human beings.
In an auction, a seller offers an item or items for sale, but does not establish a price.
Potential buyers are given information about the item or some opportunity to examine it;
they then offer bids, which are the prices they are willing to pay for the item. The
potential buyers, or bidders, each have developed private valuations, or amounts they are
willing to pay for the item. The whole auction process is managed by an auctioneer.In
some auctions, people employed by the seller or the auctioneer can make bids on behalf
of the seller. These people are called shill bidders. Shill bidders can artificially inflate the
price of an item and may be prohibited from bidding by the rules of a particular auction.

English Auctions
Many different kinds of auctions exist. Most people who have attended or seen an auction
on television have experienced only one type of auction, the English auction, in which
bidders publicly announce their successive higher bids until no higher bid is forthcoming.
At that point, the auctioneer pronounces the item sold to the highest bidder at that
bidder’s price. This type of auction is also called an ascending-price auction. An English
auction is sometimes called an open auction (or open-outcry auction) because the bids

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