Mumbai University > Information Technology > Sem 7 > E–Commerce & E-Business

Marks: 10 M

Year: Dec 2013

1. Introduction:

   i. Auctions have been highlighted as one of the new Business models for the internet.

   ii. It involves determination of the basis for product or service exchange between a buyer and seller according to particular trading rules.

2. Types of Auctions:

   The various types of auctions are as follows:

   i. Forward, Upward or English Auctions:

   1. These are the types of auctions available in consumer sites such as eBay.
   2. For this type of auction, seller sets the rules and the timing, and then invites the potential bidders.
   3. This type of auctions is also called as open auctions since the bids are publicly announced.
   4. A minimum bid is the price at which the auction begins.
   5. If no bidders are willing to pay this price, the item is removed from the auction and not sold.
   6. In some auctions, a minimum bid is not announced, but the sellers can establish a minimum acceptable price, called as reserve price, or simply reserve.
   7. Increasing bids are placed within a certain limit and the highest bid will succeed provided the reserve (minimum) price is exceeded.
   8. The forward auctions can also be used for effective price discovery in the market.
   9. English auctions have drawbacks for both sellers and bidders. Because the winning bidder is only required to bid a small amount more than the next highest bidder, winning bidders tend not to bid their full private valuations, which prevents sellers from obtaining the maximum possible price.
   10. Bidders risk becoming caught up in the excitement of competitive bidding and then bidding more than their private valuations. This psychological phenomenon is called as Winner’s curse.

   ii. Reverse, downward or Dutch Auctions:

   1. These auctions are more common on business-to-business marketplaces. For these auctions, the buyer sets the rules and timing.
   2. Here the buyer places the request for tender or quotation (RFQ) and many suppliers compete, decreasing the price, with the supplier whom the buyer selects getting the contract.
   3. Because the price drops until bidder claims the item, they are also called as descending price auctions.
   4. Companies may use the reverse auctions to:
      • Rationalize suppliers in a particular spending category.
      • Source new components in an area they are unfamiliar with.
   5. The most common application of reverse auctions is for E-procurement, a strategy used by purchasing as part of strategic sourcing and other supply management activities.
   6. It enables suppliers to compete on-line in real time and are changing the way firms and their consortia select and behave with their suppliers worldwide.
   7. It improves effectiveness of the sourcing process and facilitate access to new suppliers. It also leads to standardization of sourcing procedures, reduced order cycle, reduced prices and generally higher service levels
   8. Reverse auctions are used to fill both large and small value contracts for both public sector and private commercial organizations.
   9. In addition to items traditionally thought of as commodities, reverse auctions are also used to source buyer-designed goods and services; and they have even been used to source reverse auction providers.
   10. Most online retailers who have tried Dutch auctions have found that they do not increase sales or generate interest in the products well enough to justify the costs of operating the auction.