Page 69 - Introduction to Electronic Commerce and Social Commerce

2.5 Auctions, Bartering, and Negotiating Online 47

Electronic Auctions gresses. Each of these can be used for either liquidation or
for market efficiency.
The Internet provides an infrastructure for executing auc-
tions electronically at lower cost, with a wide array of sup- Example: Warren Buffet’s Annual Power Lunch Auctions
port services, and with many more participating sellers and Every year, Warren Buffet, the famous U.S. investment guru,
buyers than physical auctions. Individual consumers and has an auction with the prize being a lunch with him; the
corporations can both participate in this rapidly growing and winner may also bring along up to seven friends. The winner
very convenient form of e-commerce. pays big money for the honor. The money is donated to a
Electronic auctions (e-auctions) are similar to off-line charity called the Glide Foundation, which helps the poor
auctions except that they are conducted online. E-auctions and homeless in San Francisco. In the past, Buffett charged
(or online auctions) have been in existence since the 1980s $30,000 per group. Since July 2003, Buffett has placed the
over LANs (e.g., for flowers; see Saarinen et al. 2006). Host invitation on an online auction (eBay). In 2003, bidders
sites on the Web, which were started in 1995, serve as bro- pushed the bid from $30,000 to $250,100. The highest win-
kers, offering services for sellers to post their goods for sale ning bid was in 2012, by an anonymous bidder, in the record-
and enabling buyers to bid on those items. setting amount of $3,456,789. However, in 2015, the highest
Major online auction sites, such as eBay (see Online File bid was $2.3 million. In addition to benefiting the needy, the
W2.3), offer consumer products, electronic parts, artwork, auction provides an opportunity for people (with money) to
vacation packages, airline tickets, and collectibles, as well as meet Mr. Buffett.
excess supplies and inventories that are being auctioned off
by businesses. Another type of B2B online auction is used to One Buyer, Many Potential Sellers
trade special types of commodities, such as electricity trans-
mission capacities and gas and energy options (e.g., see Two popular types of auctions in which there is one buyer
energyauctionexchange.com). Furthermore, conventional and many potential sellers are reverse auctions (tendering)
business practices that traditionally have relied on contracts and name-your-own-price auctions.
and fixed prices increasingly are converted into auctions with
bidding for online procurements. Reverse Auctions
For a comparison of 10 online auction sites, see online- When there is one buyer and many potential sellers, a
auction- sites.toptenreviews.com. reverse auction (bidding or tendering system) is in place.
In a reverse auction, the buyer places an item he or she
wants to buy for a bid (or tender) on a request for quote
Types of Auctions (RFQ) system. Potential suppliers bid on the item, reducing
the price sequentially (see Figure 2.3). In electronic bidding
It is customary to classify auctions into the following major in a reverse auction, several rounds of bidding may take
types based on how many buyers and sellers are involved. place until the bidders do not reduce the price any further.
The winning supplier is the one with the lowest bid (assum-
One Buyer, One Seller ing that only price is considered). Reverse auctions are pri-
marily a B2B or G2B mechanism. (For further discussion
In this configuration, one can use negotiation, bargaining, or and examples, see Chapter 5.
bartering. The resulting price will be determined by each
party’s bargaining power, supply and demand in the item’s The Name-Your-Own-Price Model
market, and (possibly) business environment factors. Priceline.com pioneered the name-your-own-price model.
In this model, a would-be buyer specifies the price (and
One Seller, Many Potential Buyers other terms) that he or she is willing to pay to any willing
and able seller. For example, Priceline.com (priceline.com)
In this configuration, the seller uses a forward auction, presents consumers’ requests to sellers, who fill as much of
which is an auction where a seller entertains bids from mul- the guaranteed demand as they wish at prices and terms
tiple buyers. (Because forward auctions are the most com- agreed upon by buyers. The sellers may come up with coun-
mon and traditional form, they often are simply called ter offers managed by Priceline. Alternatively, Priceline.
auctions.) The four major types of forward auctions are com searches its own database that contains the participat-
English and Yankee auctions, in which bidding prices ing vendors’ lowest prices and tries to match supplies with
increase as the auction progresses, and Dutch and free-fall requests. This is basically a C2B model, although some
auctions, in which bidding prices decline as the auction pro- businesses also use it.