The online auction business model is one in which participants bid for products The noun product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce '(to) lead or bring forth'. Since 1575, the word "product" has referred to anything produced. Since 1695, the word has referred to "thing or things and services A service is the non-ownership equivalent of a good. Service provision has been defined as an economic activity that does not result in ownership and is claimed to be a process that creates benefits by facilitating either a change in customers, a change in their physical possessions, or a change in their intangible assets over the Internet The Internet is a global system of interconnected computer networks that use the standardized Internet Protocol Suite to serve billions of users worldwide. It is a network of networks that consists of millions of private and public, academic, business, and government networks of local to global scope that are linked by copper wires, fiber-optic. The functionality of buying and selling in an auction An auction is a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder. In economic theory, an auction may refer to any mechanism or set of trading rules for exchange format is made possible through auction software Auction software is application software, that can either be deployed on a Web server for online auctions or as stand-alone software for commercial and/or charity live and silent auctions, that handles all aspects of conducting an auction. It provides the ability for users to post items for sale in an auction format as well as the ability to bid which regulates the various processes involved.

Several types of online auctions are possible. In an English auction An English auction is a type of auction, whose most typical form[clarification needed] is the "open outcry" auction. The auctioneer opens the auction by announcing a Suggested Opening Bid, a starting price or reserve for the item on sale and then accepts increasingly higher bids from the floor consisting of buyers with a possible the initial price starts low and is bid up by successive bidders. In a Dutch auction A Dutch auction is a type of auction where the auctioneer begins with a high asking price which is lowered until some participant is willing to accept the auctioneer's price, or a predetermined reserve price is reached. The winning participant pays the last announced price. This is also known as a "clock auction" or an open-outcry, multiple identical items are offered in one auction, with all winning bidders paying the same price -- the highest price at which all items will be sold (treasury bills A United States Treasury security is a government debt issued by the United States Department of the Treasury through the Bureau of the Public Debt. Treasury securities are the debt financing instruments of the United States Federal government, and they are often referred to simply as Treasuries. There are four types of marketable treasury, for example, are auctioned this way). Almost all online auctions use the English auction method.

Contents

Strengths of the business model

The strategic advantages of this business model A business model is a framework for creating economic, social, and/or other forms of value. The term business model is thus used for a broad range of informal and formal descriptions to represent core aspects of a business, including purpose, offerings, strategies, infrastructure, organizational structures, trading practices, and operational include:

  1. No time constraints. Bids can be placed at any time (24/7 In commerce and industry it sometimes identifies a service that will be present regardless of current time or day, as might be offered by a supermarket, convenience store, ATM, Filling station, restaurant, concierge services or a manned computer data facility. Today, it is common for call centers to have representatives available 24/7. This is due). Items are listed for a number of days (usually between 1 and 10, at the discretion of the seller), giving purchasers time to search, decide, and bid. This convenience increases the number of bidders.
  2. No geographical constraints. Sellers and bidders can participate from anywhere that has internet access. This makes them more accessible and reduces the cost of "attending" an auction. This increases the number of listed items (ie.: number of sellers) and the number of bids for each item (e.g.: number of bidders). The items do not need to be shipped to a central location, reducing costs, and reducing the seller's minimum acceptable price Ask price, also called offer price, offer, asking price, or simply ask, is a price a seller of a good is willing to accept for that particular good.
  3. Intensity of social interactions. The social interactions involved in the bidding process are very similar to gambling. The bidders wait in anticipation hoping they will "win." Much like gambling addiction Problem gambling is an urge to gamble despite harmful negative consequences or a desire to stop. The term is preferred to compulsive gambling among many professionals[citation needed], as few people described by the term experience true compulsions in the clinical sense of the word.[citation needed] Problem gambling often is defined by whether, some bidders may bid primarily to "play the game" rather than to obtain products or services. This creates a highly loyal customer segment. This can also skew the prices of items/services/goods in the auction.
  4. Large number of bidders. Because of the potential for a relatively low price, the broad scope of products and services available, the ease of access, and the social benefits of the auction process, there are a large numbers of bidders.
  5. Large number of sellers. Because of the large number of bidders, the potential for a relatively high price, reduced selling costs, and ease of access, there are a large number of sellers.
  6. Network economies. The large number of bidders will encourage more sellers, which, in turn, will encourage more bidders, which will encourage more sellers, etc., in a virtuous circle. The more the circle operates, the larger the system becomes, and the more valuable the business model becomes for all participants.
  7. Captures consumers' surplus. Auctions are a form of first degree price discrimination Price discrimination exists when sales of identical goods or services are transacted at different prices from the same provider. In a theoretical market with perfect information, no transaction costs or prohibition on secondary exchange to prevent arbitrage, price discrimination can only be a feature of monopoly and oligopoly markets, where market. As such, they attempt to convert part of the consumers' surplus The term surplus is used in economics for several related quantities. The consumer surplus is the amount that consumers benefit by being able to purchase a product for a price that is less than they would be willing to pay. The producer surplus is the amount that producers benefit by selling at a market price mechanism that is higher than they (defined as the area above the market price line but below the firm's demand curve) into producers' surplus In economics, economic profit is the difference between a company's total revenue and its opportunity costs. It is the increase in wealth that an investor has from making an investment, taking into consideration all costs associated with that investment including the opportunity cost of capital.

Criticism

Auction sites, like garage sales, flea markets, classified advertisements and other independent sales venues, sometimes draw criminals wishing to sell stolen products, but for law enforcement organizations, finding stolen goods offered online is sometimes easier than more traditional detection methods.[1]

Some criticism is leveled at online auction websites for uneven representation of items offered for sale. Descriptions may omit important information, and photos may not be adequate. Potential bidders can typically protect themselves by reading the text, studying photographs and asking questions of the seller before bidding. Studies show that a large proportion of unsatisfactory online purchase experiences are the result of careless consumerism.[citation needed]

In the U.S., large retailers have lobbied Congress to require online auction sites to share private sales information about sellers, citing potential illegalities. Within the online auction community this is commonly viewed as an attempt at unfair market protection and trade restraint. Reduced overhead sometimes enables independent online sellers to offer goods at lower prices than large retailers.

Online auction selling has attracted millions of laid-off workers, as well as the disabled, parents of young children, retirees, pensioners and others that are unable to find employment in the mainstream workforce.[citation needed] Online auction venue corporations are accused of engaging in discriminatory trade practices that unfairly impact such customers. Presently, the trading practices of online auction venue corporations is not regulated by state or federal agencies.[citation needed]

Companies that use the model

eBay headquarters in Campbell, California.

See also

References

This article needs additional citations for verification. Please help improve this article by adding reliable references. Unsourced material may be and removed. (July 2007)
  1. ^ FBI targets online auction sites’ criminal constituency | NetworkWorld.com Community

Categories: Auctioneering Categories: Auctions and trading | Business models | Game theory | Electronic commerce Categories: Banking technology | Commerce | Information technology management

<<Table of Contents The online auction business model is one in which participants bid for products and services over the Internet. The functionality of buying and selling in an auction format is made possible through auction software which regulates the various processes involved | Show All>>

 

The above information uses material from Wikipedia and is licensed under the GNU Free Documentation License The purpose of this License is to make a manual, textbook, or other functional and useful document "free" in the sense of freedom: to assure everyone the effective freedom to copy and redistribute it, with or without modifying it, either commercially or noncommercially. Secondarily, this License preserves for the author and publisher a.
Some facts may not have been fully verified for accuracy. [Disclaimers Wikipedia is an online open-content collaborative encyclopedia, that is, a voluntary association of individuals and groups working to develop a common resource of human knowledge. The structure of the project allows anyone with an Internet connection to alter its content. Please be advised that nothing found here has necessarily been reviewed by]
This page was last archived by our server on Sun Oct 11 01:25:28 2009. [ refresh local cache ]
Displaying this page or its contents does not use any Wikimedia Foundation's resources.
The owners of this site proudly support the Wikimedia Foundation.

[Hide]▼
[Hide]▲