When the Buy it Now Option Ruined the Auction Option

This weeks’ topic was so interesting to me since I am acquainted with the auctions world. Being both an auctioneer and a bidder mostly online, I can appreciate how auction theory goes by studying both the auction and the bidder’s behavior.

This week’s article is 6 Reasons Why You Should Love eBay  it discusses how auction listings have decreased from a 70% to a 30% of all the listings. Instead, consumers are buying off listings with fixed prices items such as clothing and high-end fashion designer items. It also discusses how the availability of eBay through cell phone use, has enabled its access to bidders from all around the world especially the BRIC nations (Brazil, Russia, India, and China) As well as, the easiness of purchasing through the site without giving out too much personal information.

First of all, one can argue that the decrease in the amount of auction listings on eBay is due to the uncertainty that bidders face when bidding on items and ultimately end up paying more than what the price is worth. This feeling is associated with the winner’s curse, since while on an auction bidders may feel that it is better to win the item than not, and when this is the belief the bidder may end up paying a higher price than the real value of the item. In this case the winner will have to pay more than the item is worth for them.

Hence, the “buy it now” option eliminates the uncertainty and the exposure to winning a bid and having to overpay for it. According to the article, many of the listings are now posted under the “buy it now” option instead of the auction option. This eliminates the ambiguity that people feel when bidding on an item and accelerate the process of consumers when they are interested on an item. . However, from an auction theory standpoint, the “buy it now” option violates the principle of auctions that the seller doesn’t know the value of the buyer towards the auctioned item. In this case, both bidder and auctioneer have full information to the prices and can make better decisions about the items auctioned.

However, auction theory may not predict why, although the buyer has a value for an item which is its true bid, then many bidders end up choosing the “buy it now” option rather than using the auction that could potentially give them a lower price for the same item. Perhaps, bidders have concluded that having a reserved price in an auction is the same as just purchasing the item for the “buy it now” price since it is easier, there is no competition and up to some extend it is faster to just do it this way.

Thoughts?

Until next post

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3 thoughts on “When the Buy it Now Option Ruined the Auction Option”

  1. The changed behavior of consumers participating in online auctions like on Ebay does not surprise me. The movement from auctions to “buy now” options is reasonable for me from different points of view. First of all, talking about the auctions in class we learned that the dominant strategy is always to bid the value of the buyer, but since online many people are participating in an auction, we learned that over estimation plays a larger role and payoff of the consumers decrease. Moreover, it is a matter of time and effort to achieve the information needed to place a reasonable bit. I also see a lack of quality information about the object online, so that bids can be placed based on wrong assumptions or expectation. Last but not least, not all participants are familiar with the auctions strategies, and especially talking about small amounts of money, I would not expect that all consumers participating act rational. I can see why people chose to rather purchase with the “buy now” option because it is more simple and they need less time and information than for an auction.

    1. Participating in an online auction consumes a good amount of time for buyer in that they are required to keep their attention devoted to making sure that their bid comes out on top. The painful part of the time that buyers invest is that the whole activity is under the umbrella of uncertainty that they will wither lose the item or pay too much. The “buy it now” option allows freedom from the uncertainty of both price and success. Behavioral economics also shows that individuals are strongly biased towards certain outcomes, and this often proves to beat a potentially lower price in an an uncertain auction.

  2. I have never bid anything on ebay, but the concept of “buy it now” makes sense to me. The seller sets a “buy it now” price roughly around how much he/she’ll be content or sets the price high up. But the reason why this concept works is because each person’s values are different. For instance, person “X” might pay up to $600 for a Jordan 11s, but for person “Y”, $300 might be the max that they’ll ever pay for. If the seller sets the “buy it now” price at $500, person “Y” would prefer bidding for a chance to get it at $300 or less, but for person “X”, he would prefer “buy it now” and pay $500. Yes, there is a chance that he can get it for cheaper if he wins the bid, but for him, Jordan 11s is worth paying more for it.

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