Chapter 6 Key Concepts

7 Types of Auctions
1. English Auction: bidders publicly announce their successive higher bids until no higher bid is forthcoming. Item is sold to the highest bidder. Also called an ascending price auction, or open auction.
-bidders tend not to bid at their full private valuations, only slightly higher than the bidder before, preventing the seller from achieving the maximum price
2. Dutch Auction: an open auction in which bidding starts at a high price and drops until a bidder accepts the price, also known as a descending price auction. Used in the Netherlands by farmers to sell perishable goods.
-are difficult for customers to understand, and expensive to run
3. First-Price Sealed-Bid Auctions: bidders submit their bids independently and are prohibited from sharing information with each other, where the highest bidder wins.
4. Second-Price Sealed-Bid Auctions: similar to first-price, but highest bidder is awarded the item at the price by the second highest bidder. Also called Vickrey auctions.
-encourages bidders to bid the amounts of their private valuations.
5. Open-Outcry Double Auctions: used by the Chicago Board of Trade for commodity futures and stock options. Buy and sell offers are shouted by traders standing in a small area on the exchange floor called a trading pit.
-can get a little hectic
-only work well for items of known quality in large quantities
6. Sealed-Bid Double Auctions: buyers and sellers each submit combined price-quantity bids to an auctioneer, who then matches the seller’s offers to the buyer’s offers until everything is sold. Used by the NYSE.
7. Reverse (Seller-Bid) Auctions: multiple sellers submit price bids to an auctioneer who represents a single buyer. Bids are for a given amount of a specific item that the buyer wants to purchase. Prices go down until no seller is willing to bid lower. Used by Priceline.com

Online Auctions
General Consumer Auctions: most successful example is eBay. Includes a third-party assurance provider, a minimum bid increment, a proxy bid (the bidders maximum bid). Amazon also added auctions to its services.
Specialty Consumer Auctions: special interest markets for certain target markets, in order to meet specified needs of those segments.
Consumer Reverse Auctions and Group Purchasing Sites:
-reverse auctions directed at a consumer market, using a reverse bid, ie. Priceline.com
-group purchasing site: seller posts item with a price. As more bids (without any specified prices) are put in, it forces the seller to reduce its price. Good for non-perishable goods with a high value-to-size ratio

Business to Business Auctions:
Developed from manufacturers’ need to get rid of excess inventory. Liquidation brokers sell excess inventory of smaller companies.
Business to Business Reverse Auctions:
Similar to consumer reverse auction, but takes place between businesses or suppliers

Auction-related services
Escrow services – an independent third party who holds an auction buyer’s payment until the buyer receives the purchased item and is satisfied with what the seller represented it to be. Escrow services charge a fee in order to provide this service.
Auction Directory and Information Services – a web directory of auctions, offering tips, newsletters, info on fair market value, current selling prices, etc.
Auction Software – software that helps buyers and sellers manage their online auctions. Ie. Sniping software helps bidders place the winning bid before the last second of the auction clock.
Consignment Services – an auction for people who wish to sell an item but do not have the time or skills to do it themselves. The consignment services will take care of the whole thing and deduct a fee from the sellers profit.

Virtual Communities and Web Portals
-Mobile Communications Technology
‘Wireless communication capabilities’. The PDA is an example that uses WAP (Wireless Application Protocol).
-WAP allows Web pages formatted in HTML to be displayed on devices with small screens such as PDAs and mobile phones.
-GPS (Global Positioning Service): user enters a destination, GPS tracks the users current location and then announces directions to the destination.
-Mobile Business
Expected to pick up in popularity soon, once mobile phones, notebooks, etc are interconnected in ways that allow people to switch modes of access seamlessly. Few companies have been successful so far.
-Intelligent Software Agents
Sites that help users find products and services for sale on the Web at buyers specifications.
-Virtual Communities
A gathering place for people and businesses that does not have a physical existence, ie. Chat rooms, usenet newsgroups, and web sites. They offer people a way to connect with each other and discuss common issues and interests.
-another form is a ‘virtual learning community’ such as WebCT
-Bogs (Web Logs): web sites that contain commentary written by individuals
-Social Networking Sites: virtual communities that exist for the sole purpose of community (Facebook)
-Idea-based virtual communities: communities based on certain ideas or specialized topics

Revenue Models for Web Portals and Virtual Communities
Advertising Supported
Site is free for users; survives on revenue from ads placed on the site
Mixed Revenue
Charges a fee to users and always runs ads on the site. Monetizing refers to converting existing regular site visitors into fee-paying members.
Internal
Web portals of large organizations that provide info to employees on Intranets that are cost effective for employers.