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Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder
Edition 12ISBN: 978-1133189022Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder
Edition 12ISBN: 978-1133189022 Exercise 6
Internet Auctions
Auctions on the Internet have rapidly become one of the most popular ways of selling all manner of goods. Web sites offering auctions range from huge, all-inclusive listings such as those on eBay or Amazon to highbrow specialties (Sotheby's). Virtually every type of good can be found on some Web site. There are sites that specialize in collectibles, industrial equipment, office supplies, and the truly weird (check out Disturbingauctions.com). Occasionally, even human organs have appeared in Internet auctions, though, at least in the United States, selling such items is illegal and this may have been a hoax.
Is Supply Fixed in Internet Auctions?
There is a sense in which Internet auctions resemble the theoretical situation illustrated in Figure 9.1-the goods listed are indeed in fixed supply and will be sold for whatever bidders are willing to pay. But this view of things may be too simple because it ignores dynamic elements that may be present in suppliers' decisions. Suppose, for example, that a supplier has 10 copies of an out-of-print book to sell. Should he or she list all 10 at once? Because buyers may search for what they want only infrequently, such a strategy may not be a good one. Selling all of the books at once may yield rather low prices for the final few sold because, at any one time, there are few demanders who value the books highly. But spreading the sales over several weeks may yield more favorable results.
Special Features of Internet Auctions
A quick examination of auction sites on the Internet suggests that operators employ a variety of features in their auctions. Amazon, for example, has explicitly stated "reserve" prices that must be met before a bid will be considered. eBay does not explicitly report a reserve price, but many items do have reserve prices that can only be discovered through the bidding process. Some auctions provide you with a bidding history, whereas others only tell you the cumulative number of bids. A few auctions offer you the opportunity of buying a good outright at a relatively high price without going through the bidding process. For example, eBay has a "Buy It Now" price on many items. What purposes do these various features of Internet auctions serve? Presumably, an operator will only adopt a feature that promises to yield it better returns in terms of either attracting more buyers or (what may amount to the same thing) obtaining higher prices for sellers. But why do these features promise such higher returns? And why do auctioneers seem to differ in their opinions about what works? Attempts to answer these questions usually focus on the uncertainties inherent in the auction process and how bidders respond to them.
Risks to Participants in Internet Auctions
Because buyers and sellers are total strangers in Internet auctions, a number of special provisions have been developed to mitigate the risks of fraud that the parties might encounter in such situations. The primary problem facing bidders in the auctions is in knowing that the goods being offered meet expected quality standards. An important way that many of the auctions help to reduce such uncertainty is through a grading process for sellers. Previous bidders provide rankings to the auction sites, and these are summarized for potential buyers. A good reputation probably results in a seller receiving higher bids. For sellers, the primary risk is that they will not be paid (or that a check will bounce). Various intermediaries (such as PayPal) have been developed to address this problem.
Penny Auctions
So-called penny auctions (such as Deal Dash) pose added risks to participants. In these auctions bidders must pay for bids that give the auction winner the right to buy items at very low costs. For those who do not win, however, the amounts spent on bids are completely lost. Hence, these activities combine features of auctions and lotteries in which outcomes for participants can be quite variable.
Why do some sellers on eBay offer "Buy it Now" prices? Doesn't this just put an upper limit on what they might get for their items?
Auctions on the Internet have rapidly become one of the most popular ways of selling all manner of goods. Web sites offering auctions range from huge, all-inclusive listings such as those on eBay or Amazon to highbrow specialties (Sotheby's). Virtually every type of good can be found on some Web site. There are sites that specialize in collectibles, industrial equipment, office supplies, and the truly weird (check out Disturbingauctions.com). Occasionally, even human organs have appeared in Internet auctions, though, at least in the United States, selling such items is illegal and this may have been a hoax.
Is Supply Fixed in Internet Auctions?
There is a sense in which Internet auctions resemble the theoretical situation illustrated in Figure 9.1-the goods listed are indeed in fixed supply and will be sold for whatever bidders are willing to pay. But this view of things may be too simple because it ignores dynamic elements that may be present in suppliers' decisions. Suppose, for example, that a supplier has 10 copies of an out-of-print book to sell. Should he or she list all 10 at once? Because buyers may search for what they want only infrequently, such a strategy may not be a good one. Selling all of the books at once may yield rather low prices for the final few sold because, at any one time, there are few demanders who value the books highly. But spreading the sales over several weeks may yield more favorable results.
Special Features of Internet Auctions
A quick examination of auction sites on the Internet suggests that operators employ a variety of features in their auctions. Amazon, for example, has explicitly stated "reserve" prices that must be met before a bid will be considered. eBay does not explicitly report a reserve price, but many items do have reserve prices that can only be discovered through the bidding process. Some auctions provide you with a bidding history, whereas others only tell you the cumulative number of bids. A few auctions offer you the opportunity of buying a good outright at a relatively high price without going through the bidding process. For example, eBay has a "Buy It Now" price on many items. What purposes do these various features of Internet auctions serve? Presumably, an operator will only adopt a feature that promises to yield it better returns in terms of either attracting more buyers or (what may amount to the same thing) obtaining higher prices for sellers. But why do these features promise such higher returns? And why do auctioneers seem to differ in their opinions about what works? Attempts to answer these questions usually focus on the uncertainties inherent in the auction process and how bidders respond to them.
Risks to Participants in Internet Auctions
Because buyers and sellers are total strangers in Internet auctions, a number of special provisions have been developed to mitigate the risks of fraud that the parties might encounter in such situations. The primary problem facing bidders in the auctions is in knowing that the goods being offered meet expected quality standards. An important way that many of the auctions help to reduce such uncertainty is through a grading process for sellers. Previous bidders provide rankings to the auction sites, and these are summarized for potential buyers. A good reputation probably results in a seller receiving higher bids. For sellers, the primary risk is that they will not be paid (or that a check will bounce). Various intermediaries (such as PayPal) have been developed to address this problem.
Penny Auctions
So-called penny auctions (such as Deal Dash) pose added risks to participants. In these auctions bidders must pay for bids that give the auction winner the right to buy items at very low costs. For those who do not win, however, the amounts spent on bids are completely lost. Hence, these activities combine features of auctions and lotteries in which outcomes for participants can be quite variable.
Why do some sellers on eBay offer "Buy it Now" prices? Doesn't this just put an upper limit on what they might get for their items?
Explanation
Verified
Verified
E-bay keeps its reserve price a secret f...
Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder
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