Technology of the week team 21: “Online auctions: bargain hunting or a scam?”
In order for us to get more insight on this question, we did research on two online auctions. Namely, Vakantieveilingen.nl and uBid.com. For the one unfamiliar with these websites we provide a short outline on online auctions, their specific business models, a comparison of the two, and an answer to the question.
In online auctions buyers are faced with the well-known winner’s curse (Bajari and Hortaçsu, 2003). This leads them to bid higher than the actual value of the product. Moreover, information asymmetry causes the prices to differ from the real market value. Buyers can never be sure about the seller’s intentions and the product’s quality. These effects make us question whether online auctions can be seen as a place to go bargain hunting or if they are just a scam.
Vakantieveilingen.nl is one of the biggest Dutch players in online auctions of travel and leisure services. The customer can bid on auctions ranging from concert tickets to complete holidays. Different from Vakantieveilingen.nl, uBid.com is an American based auction platform which offers new, overstocked products from over 25 different categories. It is specialized in electronic devices from top brands such as Sony, Dell, and Apple. Both Vakantieveilingen.nl and uBid.com face difficulties presented by the media. Bidders are often disappointed by the final price they have to pay after winning a bid and sometimes the item does not match its description (VakantieVeilingen.nl, 2014) (uBid.com, 2014).
The value proposition of Vakantieveilingen.nl and uBid.com are quite similar. They both promise an exceptional online experience while bidding on their auctions. uBid emphasizes its aim for outstanding service, not only for their customers but also for their team and partners. At Vakantieveilingen.nl the aim is mainly on low prices instead of service. Its revenue streams come from the following two sources: customer paying a fixed administrative fee and from advertisements on their website. uBid.com also generates revenue from two sources, namely from the profit they make on their auctions and the commission they receive from their certified merchants.
In order for us to compare the two online auctions we conducted a strengths and weaknesses analysis and the results are presented in the table depicted below.
– Multichannel presence. – Long term partnerships with
– Network of affiliate marketing – New products from high quality
– Offer overload. – No direct feedback channel.
– Product uncertainty. – Lawsuits concerning suppliers.
With the information presented above, we can conclude that online auctions do not really present us with great bargains. However, with the current media pressure and lawsuits the firms are facing pressure to make their operations more transparent. This leads to more customer informedness and less product and supplier uncertainty. One last tip for the auction enthusiasts: always read the terms and conditions before jumping into exciting world of bidding.
VakantieVeilingen.nl 2014, viewed 22 September 2014, <http://aanbieders.vakantieveilingen.nl/partnerworden/>, <http://www.vakantieveilingen.nl/partnerprogramma.html>
uBid.com, 2014, viewed 22 September 2014, <http://www.ubid.com/>
Bajari, A., and Hortaçsu, A. 2003. “Winner’s Curse, Reserve Prices and Endogenous Entry: Empirical Insights from eBay Auctions,” Rand Journal of Economics (34:2), pp. 329-355