Auctions by Timothy P. Hubbard & Harry J. Paarsch

Author:Timothy P. Hubbard & Harry J. Paarsch [Hubbard, Timothy P.]
Language: eng
Format: epub
ISBN: 9780262528535
Publisher: The MIT Press
Published: 2016-01-22T05:00:00+00:00

6

Internet Auctions

Three years before Tom Hanks and Meg Ryan again joined forces in You’ve Got Mail, Pierre Omidyar was running the auction website AuctionWeb, out of a house in Silicon Valley. By the time You’ve Got Mail hit the big screen, Omidyar was a billionaire, after his company, renamed eBay, went public. At that time, eBay’s growth exceeded 1,000 percent per quarter.

eBay made people independent by connecting them to the rest of the world, or at least the part that had access to the Internet. One core lesson of auction theory is that the seller can expect higher prices for an object that bidders value privately when the number of bidders at the auction increases. By connecting bidders virtually, eBay expanded the number of potential bidders, thus allowing sellers to garner higher prices.

Perhaps better than any other auction market, however, eBay epitomizes the notion that auctions can be used to discover the price of unique objects. Some quirky examples of things sold on eBay (with winning prices noted in parentheses) include a cornflake shaped like the state of Illinois ($1,350), the oldest known pair of Levi jeans ($46,532), lunch with Warren Buffet ($2.63 million), a tissue used by Scarlett Johansen on The Tonight Show with Jay Leno ($5,300), a handwritten letter from Albert Einstein to Erik Gutkind ($3 million), a piece of the Zagami Martian meteorite ($450,000), and the town of Albert, Texas ($2.5 million). Although unsuccessful, sellers have also used eBay as a venue to try to sell a grandmother, personal organs, the telephone number made famous by Tommy Tutone (867–5309 with various area codes), military fighter jets, and a ghost in a jar. eBay has made a reality of the expression “one man’s junk is another man’s treasure.” As mentioned, legend has it that Omidyar himself sold the first such object on eBay—a broken laser pointer.

Websites like eBay provide what economists refer to as network effects. The value of the online marketplace is greater to an individual participant the more participants are involved: buyers benefit from a large number of sellers making it more likely that they can find items that interest them; sellers benefit from a large number of buyers because competition increases average traded prices. Such network effects make it difficult for new online auction websites to enter the industry. Consequently, eBay remains the dominant Internet auction. Nevertheless, online auctions have proliferated in other parts of the economy. For example, Goodwill Industries sells objects at auctions on ­ShopGoodwill.com using the proceeds to support its missions; PropertyRoom.com sells goods seized by law enforcement officers at auction; the money goes back to communities across the United States; GovDeals.com, GovSales.gov, and PublicSurplus.com permit various government agencies to sell surplus items, confiscated goods, even real estate, at auction; uBid.com works with preapproved, authorized merchants to auction refurbished and overstocked items. Because Internet auctions are now a staple in today’s economy, exploring auction-related issues in these virtual settings is obviously important.

eBay’s Pricing Rule

Electronic auctions, such as those implemented by eBay, have

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.