User:Craigjp88/sandbox
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Introduction
Online auctions come in many different formats, but most popularly they are either ascending English Auctions, descending Dutch auctions, First-price sealed-bid, Second-price sealed-bid, Vickrey Auctions, or sometimes even a combination of multiple auctions, taking elements of one and forging them with another. The scope and reach of the auctions has been propelled by the internet to a level beyond what the initial purveyors had anticipated [1]. This is mainly due to the fact that online auctions break down and remove the physical limitations of traditional auctions such as geography, presence, time, space, and a small target audience [1]. In 2002, online auctions were projected to account for 30% of all online e-commerce due to the rapid expansion of the popularity of the form of electronic commerce [2].
Online auction history
Internet auctions were taking place even before the release of the first web browser for personal computers, NCSA Mosaic, was released. Instead of users selling items through the Web they were instead trading through text-based newsgroups and email discussion lists. However, the first Web-based commercial activity regarding online auctions that made significant sales began in 1995 starting with Onsale in May and later that year in September eBay began trading [3] . Both of these auctions were ascending bid auctions and the first of their kind to take advantage of the new technological opportunities offered by the Web, advantages such as [3]:
- The use of automated bids via electronic forms
- Search engine technology to be able to quickly find desirable items
- Allowing users to view by categories
Online auctions have greatly increased the variety of goods and services that can be bought and sold using auction mechanisms along with also expanding the possibilities for the ways auctions can be conducted and in general created new uses for auctions [4]. In the current web environment there are hundreds, if not thousands, of websites dedicated to online auction practices [4].
Types of online auctions
There are four different basic types of online auctions:
English auctions
In live terms, English auctions are where bids are announced by either an auctioneer or by the bidders and winners pay what they bid to receive the object. English auctions are claimed to be the most common form of third-party on-line auction format used and is deemed to appear the most simplistic of all the forms[5]. The common operational method of the format is that it is an ascending bid auction in which bids are open for all to see. The winner is the highest bidder and the price is the highest bid [4]. The popularity of the English auction is that it uses a mechanism that people find familiar and intuitive and therefore reduces transaction costs. It also transcends the boundaries of a traditional English auction where physical presence is required by the bidders, making it increasingly popular even though there is a susceptibility to various forms of cheating [4]
Dutch auctions
Dutch auctions are the reverse of English auctions whereby the price begins high and is systematically lowered until a buyer accepts the price. Sites that offer Dutch auction services are usually misleading and the term 'Dutch' tends to have become common usage for the use of a uniform-price rule in a single unit auction as opposed to how it is originally intended for that of a declining price auction.[3]. However, with actual on-line Dutch auctions where the price is descending, it was found that Dutch auctions have on average a 30% higher ending price than first-price auctions with speculation pointing to bidder impatience or the effect of endogenous entry on the Dutch auction. [4]
First-price sealed-bid
First-price sealed-bid auctions are when a single bid is made by all bidding parties and the single highest bidder wins, and pays what they bid.
Second-price sealed-bid
Second-price sealed-bid auctions are the same principle as a first-price sealed bid however, the highest bidder and winner will only pay what the second highest bidder had bid.
Legalities
Shill Bidding
Placing fake bids that benefits the seller of the item is known as Shill Bidding. This is a method often used in Online auctions but can also happen in standard Auctions. This is seen as an unlawful act as it unfairly raises the final price of the auction, so that the winning bidder pays more than they should have. If the shill bid is unsuccessful, the item owner needs to pay the auction fees. In 2011, a member of eBay became the first individual to be convicted of shill bidding on an auction [6].
References
- Bapna, R., Goes, P., Gupta, A. 2001. Insights and analysis of online auctions. Communications of the ACM Vol. 44 Issue 11. November 2001
- [Auctions on the internet: What's being auctioned, and how?. The Journal of Industrial Economics. Vol. 48. September 2000]
- Pinker, E.J., Seidmann, A., Vakrat, Y., 2003. Managing Online Auctions: Current Business and Research Issues. Special Issue on E-Business and Management Science Volume 49.(pp. 1457-1484)
- "Man fined over fake eBay auctions". BBC. 2010-07-05.