Types and examples of Auctions
The principal auction formats and real examples.
5-mark Exam Answer
The primary types of auctions found on the Internet are English auctions, Dutch Internet auctions, Name Your Own Price auctions, and penny (bidding-fee) auctions. According to Laudon and Traver, the English auction is the most common form on eBay, while Priceline pioneered the Name Your Own Price format.
- 1.English: highest bidder wins, seller-biased
- 2.Dutch: multiple units, lowest successful bid sets price
- 3.Name Your Own Price: pioneered by Priceline
- 4.Penny: non-refundable bidding fee
- 5.Reserve price (usually secret) sets minimum
The English auction is the easiest to understand and the most common form of auction on eBay. There is a single item up for sale from a single seller, a time limit when the auction ends, a reserve price below which the seller will not sell (usually secret), and a minimum incremental bid. Multiple buyers bid against one another until the time limit. The highest bidder wins (if the reserve is met). English auctions are seller-biased because buyers compete.
The Dutch Internet auction format is perfect for sellers that have many identical items to sell. Sellers list a minimum price and the number of items. Bidders specify both a bid price and the quantity they want. The uniform price reigns: winning bidders pay the same price per item, which is the lowest successful bid. If there are more buyers than items, the earliest successful bids get the goods.
The Name Your Own Price auction was pioneered by Priceline and is the second most-popular auction format on the Web. Priceline acts as an intermediary, buying blocks of airline tickets, hotel rooms, and vacation packages at a discount and selling them at a reduced retail price, and it lets users specify what they are willing to pay.
In a penny (bidding fee) auction, the bidder must pay a non-refundable fee to purchase bids. These auctions are controversial because bidders can spend significant money on bid fees without winning the item.
On eBay (English), buyers bid up a rare coin for 7 days and the highest bidder wins. On Priceline (Name Your Own Price), a traveller states they will pay $200 for a flight and Priceline matches it to inventory. A Dutch auction sells 100 identical USB drives with the lowest successful bid setting the uniform price. A penny auction charges $1 per bid on a TV.
The four primary online auction types — English, Dutch, Name Your Own Price, and penny — each suit different goods and strategies, with English being most common on eBay and Name Your Own Price pioneered by Priceline.
The exam interface follows the university paper pattern: Section A & B carry 5-mark questions; Section C carries objective questions.