Page 320 - Electronic Commerce

Social Networking, Mobile Commerce, and Online Auctions

allows sellers to specify that an auction be made private. In an eBay private auction, the
site never discloses bidders’ identities and the prices they bid. At the conclusion of the
auction, eBay notifies only the seller and the highest bidder. Another auction type offered
by eBay is an increasing-price format for multiple-item auctions that eBay calls a Dutch
auction. However, these auctions are actually the Yankee auction variant of an English
auction.
In either type of eBay auction, bidders must monitor closely the bidding activity if
they intend to win the auction. All eBay auctions have a minimum bid increment, the
amount by which one bid must exceed the previous bid, which is about 3 percent of the 295
bid amount. Bidders can enter a proxy bid, which automatically increases to the next
highest increment needed to exceed any bid, up to a bidder-specified maximum bid. As
new bidders enter the auction, the eBay site software continually enters higher bids for all
bidders who placed proxy bids. Although this feature is designed to make bidding require
less bidder attention, if a number of bidders enter proxy bids on one item, the bidding
rises rapidly to the highest proxy bid offered. This rapid rise in the current bid often
occurs in the closing minutes of the auction, when multiple bidders each raise their
maximum proxy bid levels.
To attract sellers who frequently offer items or who continually offer large numbers of
items, eBay offers a platform called eBay stores within its auction site. Sellers can show
items for sale as well as items being auctioned in their eBay stores, which can help sellers
generate additional profits from sales of products related to their auction items.

General Consumer Auctions: The Lock-in Effect
By being the first major consumer auction site and by investing in substantial general
media advertising, eBay was able to establish itself early. Its success has inspired
competition from a number of powerful and well-financed companies over the years,
including Yahoo! and Amazon.com, both of whom spent large amounts of money in their
efforts to unseat eBay before giving up in 2006 and 2007, respectively. The economic
structure of online markets is biased against new entrants. Because markets become more
efficient (yielding fairer prices to both buyers and sellers) as the number of buyers and
sellers increases, new auction participants are inclined to patronize established
marketplaces. Thus, existing auction sites, such as eBay, are inherently more valuable to
customers than new auction sites. This basic economic fact, which economists call a lock-
in effect, has made the creation of alternative successful general consumer Web auction
sites very difficult.
A somewhat ironic example of the lock-in effect exists in the Japanese general
consumer auction market. In this market, unlike in the United States, Yahoo! was the first
major company to offer online auctions. At the time (early 1999), Yahoo! did not charge
fees to sellers. When eBay entered the Japanese market five months later, it charged fees
and found few people interested in its services. Even later, when Yahoo! began charging
fees for its auctions, the lock-in effect preserved its strong lead in Japan. Today, Yahoo!
Auctions holds more than 90 percent of the Japanese online auction market, while eBay’s
market share is less than 5 percent.

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