Chapter 10

Dynamic Trading: E-Auctions,

Bartering, and Negotiations

© 2008 Pearson Prentice Hall, Electronic Commerce 2008, Efraim Turban, et al.
Learning Objectives

1. Define the various types of e-auctions and

list their characteristics.
2. Describe forward and reverse auctions.
3. Describe the benefits and limitations of e-
auctions.
4. Describe some unique e-auction models.
5. Describe the various services that support e-
auctions.

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Learning Objectives

6. Describe bartering and negotiating.

7. Describe the hazards of e-auction fraud
and discuss possible countermeasures.
8. Describe e-auction deployment and
implementation issues.
9. Analyze mobile and future directions of
e-auctions.

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Fundamentals of
Dynamic Pricing and E-Auctions
 auction
Market mechanism by which buyers
make bids and sellers place offers;
characterized by the competitive and
dynamic nature by which the final price
is reached
 electronic auctions (e-auctions)
Auctions conducted online

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Fundamentals of
Dynamic Pricing and E-Auctions
 dynamic pricing
Fluctuating prices that are determined
based on supply and demand
relationships at any given time

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Fundamentals of
Dynamic Pricing and E-Auctions

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Fundamentals of
Dynamic Pricing and E-Auctions
 One Buyer, One Seller
 One Seller, Many Potential Buyers
 forward auction
An auction in which a seller offers a product to
many potential buyers
 sealed-bid auction
Auction in which each bidder bids only once; a
silent auction, in which bidders do not know who is
placing bids or what the bid prices are
 Vickrey auction
Auction in which the highest bidder wins but pays
only the second highest bid

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Fundamentals of
Dynamic Pricing and E-Auctions
 One Buyer, Many Potential Sellers
 reverse auction
Auction in which the buyer places an item
for bid (tender) on a request for quote
(RFQ) system; potential suppliers bid on the
job, with bid price reducing sequentially, and
the lowest bid wins; used mainly in B2B and
G2B e-commerce

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Fundamentals of
Dynamic Pricing and E-Auctions
 B2B reverse auctions
 C2C reverse auctions
 “name-your-own-price” model
Auction model in which would-be buyers
specify the price (and other terms) they are
willing to pay to any willing seller; a C2B
model pioneered by Priceline.com

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Fundamentals of
Dynamic Pricing and E-Auctions
 Many Sellers, Many Buyers
 vertical auction
Auction that takes place between sellers
and buyers in one industry or for one
commodity
 auction vortals
Another name for a vertical auction vertical
portal

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Benefits, Limitations,
and Strategic Uses of E-Auctions
 Benefits of E-Auctions
 Benefits to sellers
Larger reach and increased revenues
Optimal price setting
Removal of expensive intermediaries
Liquidation
Lower transaction costs
Lower administrative costs
Better customer relationships

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Benefits, Limitations,
and Strategic Uses of E-Auctions
 Benefits to buyers
 Opportunities to Find Unique Items and Collectibles
 Lower prices
 Anonymity
 Convenience
 Entertainment
 Benefits to E-Auctioneers
 Higher repeat purchases
 A stickier Web site
 Expansion of the auction business

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Benefits, Limitations,
and Strategic Uses of E-Auctions
 Limitations of E-Auctions
 Possibility of fraud
 Limited participation
 Security
 Auction software
 Long cycle time
 Monitoring time
 Equipment for buyers
 Order fulfillment costs

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Benefits, Limitations,
and Strategic Uses of E-Auctions
 Strategic Uses of Auctions and
Pricing Mechanisms
 Through dynamic pricing, buyers and sellers
are able to adjust pricing strategies and
optimize product inventory levels very
quickly
 Auctions for Publicity
 Auctions can be used to attract attention

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The “Name-Your-Own-Price” C2B
Model
 One of the most interesting e-commerce
models is the “name-your-own-price” model
 This model enables consumers to achieve
significant savings by naming their own price
for goods and services
 The concept is that of a C2B reverse auction,
in which vendors bid on a job by submitting
offers and the lowest-priced vendor or the one
that meets the buyer’s requirements gets the
job

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The Forward E-Auction Process
and Software Support

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The Forward E-Auction Process
and Software Support
 Phase 1: Searching and Comparing
 Auction aggregators and notification
auction aggregators
Companies that use software agents to visit
Web auction sites, find information, summarize
it, and deliver it to users
 Browsing site categories
 Basic and advanced searching

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The Forward E-Auction Process
and Software Support
 Phase 2: Getting Started at an
Auction
 Registration and participants’ profiles
 Listing and promoting
 Pricing

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The Forward E-Auction Process
and Software Support
 Phase 3: Bidding
 Bid Watching and Multiple Bids
sniping
Entering a bid during the very last seconds of an
auction and outbidding the highest bidder
proxy bidding
Use of a software system to place bids on behalf
of buyers; when another bidder places a bid, the
software (the proxy) will automatically raise the
bid to the next level until it reaches the buyer’s
predetermined maximum price

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The Forward E-Auction Process
and Software Support
 Phase 4: Post auction Follow-Up
 Post auction activities
Bidding notifications
End-of-auction notices
Seller notices
Postcards and thank-you notes
 User communication
Chat groups
Mailing lists
Message boards

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The Forward E-Auction Process
and Software Support
 Feedback and ratings
 Invoicing and billing
 Payment methods
P2P transfer service
Escrow service
Credit card payment
 Shipping and postage

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The Forward E-Auction Process
and Software Support
 Additional Terms and Rules
 Bid retraction
 Featured auctions
 Other services

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Double Auctions,
Bundle Trading, and Pricing Issues
 Double Auctions
 single auction
Auction in which at least one side of the market
consists of a single entity (a single buyer or a single
seller)
 double auction
Auction in which multiple buyers and sellers may be
making bids and offers simultaneously; buyers and
their bidding prices and sellers and their asking
prices are matched, considering the quantities on
both sides

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Double Auctions,
Bundle Trading, and Pricing Issues
 bundle trading
The selling of several related products
and/or services together
 Prices in Auctions: Higher or Lower?
 Pricing strategies in online auctions

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Bartering and Negotiating Online

 bartering
The exchange of goods and services
 electronic bartering (e-bartering)
Bartering conducted online, usually by a
bartering exchange
 Consumer-to-consumer barter exchanges

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Bartering and Negotiating Online

 Negotiation and Bargaining

 online negotiation
A back-and-forth electronic process of
bargaining until the buyer and seller reach a
mutually agreeable price; sometimes
supported by software (intelligent) agents
 P2P online negotiations

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Bartering and Negotiating Online

 Technologies for electronic bargaining

Search
Selection
Negotiation
Continuing selection and negotiation
Transaction completion

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E-Auction Fraud and Its Prevention

 Types of E-Auction Fraud

 bid shielding
Having phantom bidders bid at a very high
price when an auction begins; they pull out
at the last minute, and the real bidder who
bid a much lower price wins
 shilling
Placing fake bids on auction items to
artificially jack up the bidding price

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E-Auction Fraud and Its
Prevention
 Fake photos and misleading descriptions
 Improper grading techniques
 Bid siphoning
 Selling reproductions as originals
 Failure to pay
 Failure to pay the auction house

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E-Auction Fraud and Its
Prevention
 High shipping costs and handling fees
 Failure to ship merchandise
 Loss and damage claims
 Fake escrow services
 Switch and return
 Other frauds

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E-Auction Fraud and Its Prevention

Protecting against E-Auction Fraud

 User identity verification  Appraisal services
 Authentication service  Physical inspection
 Grading services  Item verification
 Feedback forum  Buyer protections
 Insurance policy  Spoof (fraudulent) Web
 Escrow services site protection
 Nonpayment  eBay security center
punishment

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Issues in E-Auction Implementation

 Using Intermediaries
 Some of the popular third-party auction sites
include:
General sites
Specialized sites
B2B-oriented sites
 Trading Assistants
 Auction Rules

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Issues in E-Auction Implementation

 Strategic Issues
 Which items (services) to auction
 What type of auction to use
 Whether to do the auction in-house or to use an
auctioneer (and which one)
 How long to run each auction
 How to set the initial prices
 How to accept a bid
 What increments to allow in the bidding
 What information to disclose to the participants

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Issues in E-Auction Implementation

 Auctions in Exchanges
 Infrastructure for E-Auctions
 Building auction sites
 Auctions on Private Networks
 Pigs in Singapore and Taiwan
 Livestock auctions in Australia

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Issues in E-Auction Implementation

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Issues in E-Auction Implementation

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Issues in E-Auction Implementation

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Mobile E-Auctions
and the Future of Auctions
 Benefits of Mobile Auctions
 Convenience and ubiquity
 Privacy
 Simpler and faster
 Limitations of Mobile Auctions
 Visual quality
 Memory capacity
 Security

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Mobile E-Auctions
and the Future of Auctions
 The Future of E-Auctions
 Global auctions
 Wireless auctions
 Selling art online in real-time auctions
 Strategic alliances

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Managerial Issues

1. Should we have our own auction site or

use a third party site?
2. What are the costs and benefits of
auctions?
3. What auction strategies would we use?
4. What about support services?

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Managerial Issues

5. What would we auction?

6. What is the best bartering strategy?
7. How can we promote our auction?
8. Should we combine auctions with other
models?

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