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.
Until next post