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Ch3 Introduction To Auctions

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13 views14 pages

Ch3 Introduction To Auctions

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amr hassan
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Electronic Commerce Security

Chapter3
Introduction to
Auctions
Dr. Ziad Dawahdeh
What is an Auction?

 Forward auction (Publicly known as


auction)
A competitive process in which a seller asks for
bids from buyers
“The highest price buys”

 Backward (reverse) auction (Bid or Tender)


A competitive process in which a buyer asks for
bids from sellers
“The lowest price sells”

Electronic auctions (e-auctions): Auctions conducted online


2
Reverse Auction
(Bid or Tender)

3
Why auctions?

 Reduces complexity of negotiations


 For object of unknown value
 Flexible
 Dynamic
 Ideal for computer implementation
Advantages of E-Auction

 Increased Revenues (more participants)


 Lower Transaction Cost
 Lower Administrative Cost
 Market Transparency
 More Fair
 Opportunities to find Unique Products
 Anonymity
 Faster than traditional auctions where sellers post
advertisements and buyers send bids through snail mail
Disadvantages of E-Auction

 Shilling: Placing fake bids on auction items to artificially jack up


the bidding price (a person is called a “shill”).
 Misleading Information
 Selling reproductions as originals
 Loss/Damage Claim
 Fraud (buyers cannot actually see/touch the product)
Taxonomy of common auctions

 Open auctions
– English
– Dutch
 Sealed-bid auctions
– First price
– Second price
– Continuous double auction
Open Auctions: English Auction

 Ascending dynamic open auction


 The highest bidder wins
 Starts at the lowest price the seller is willing to sell
 Goes up with the price as long as someone is willing to pay a
higher price.
Open Auctions: Dutch Auction

 Also called an open descending-price auction


 An auction in which the auctioneer begins with a high
asking price in the case of selling, and lowers it until some
participant accepts the price
 One of the primary advantages of Dutch auctions is speed,
the process takes relatively little time.
Sealed-bid: first price auction
 All bidders simultaneously submit sealed bids so that no
bidder knows the bid of any other participant
 Bidders submit sealed envelopes in one round of bid
submission.
 Buyer with the highest bid wins

$150 
The winner $120

$90
$50
Sealed-bid: second price auction
 All bidders simultaneously submit sealed bids so that no
bidder knows the bid of any other participant
 Buyer with the highest bid wins; pays the price of the
second highest bid

Only pays $120

$150 
$120

$90
$50
Sealed-bid: Continuous double auction

 Allows buyers and sellers to submit prices they deem


acceptable to a list
 When a match between a buyer’s price and a seller’s asking
price is found, the trade proceeds at that price
 Trades without matches will not be executed
Sealed-bid: Continuous double auction

 Examples of the Auction Market Process


 Imagine that four buyers want to buy a share of company
XYZ and make the following bids: $10.00, $10.02, $10.03 and
$10.06
 Four sellers wish to sell shares of company XYZ, and these
sellers submitted offers to sell their shares at the following
prices: $10.06, $10.09, $10.12 and $10.13, respectively.
 In this scenario, the individuals that made bids/offers for
company XYZ at $10.06 will have their orders executed, all
remaining orders will not immediately be executed,
 The current price of company XYZ will be $10.06.
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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