Consumers actually don’t like online auctions


The recent lecture on auctions discussed many examples of auctions and why they work well. If auctions are so great, then why are offerings on online marketplaces increasingly dominated by fixed prices (Einav et all, 2015)? Take a look at the distribution of price formations at eBay in figure 1.

Figure 1: eBay sales by value in the US (The Economist)

Theoretically, auctions should be better for both buyers and sellers due to the efficient allocation of goods to the person that values them most highly. Online platforms like eBay make connecting enough buyers and sellers together both cheap and convienent. Due to eBay’s first mover advantage, the theoretical desireability of auctions, and network effects we should see an ever increasing amount of online auctions. Why then, is the exact opposite happening?

It turns out that the theoretical desireability of auctions doesn’t transfer well to the real world at eBay. Most new users use an incremental bidding technique -they manually place a higher bid when they are outbid- and don’t use an automatic reserve based system. This opens them up to auction sniping, and apperently people really don’t like getting ‘sniped’.

So what is sniping? Snipers place bids in the final seconds of auctions with predetermined ending times (like those at eBay), with the aim of getting the deal. In this way, incremental bidders can lose an auction at a price that is still under their reserve. Bidders respond strongly to sniping, when someone gets sniped they are between 4 and 18 percent less likely to return to the platform (Backus et al, 2015).

Other than sniping, there is the required investment of time and energy associated with auctions. Einav et al suggest that users don’t want to spend that time and energy when shopping, they want to spend it on social media instead.

So as it turns out, consumers don’t like online auctions that much. They think they are too labor-intensive and care a great deal about the sniping problem.

Sources:

SALES MECHANISMS IN ONLINE MARKETS: WHAT HAPPENED TO INTERNET AUCTIONS? Liran Einav Chiara Farronato Jonathan D. Levin Neel Sundaresan

IS SNIPING A PROBLEM FOR ONLINE AUCTION MARKETS? Matthew Backus Tom Blake Dimitriy V. Masterov Steven Tadelis

http://www.economist.com/news/finance-and-economics/21662595-economists-may-idolise-auctions-most-people-do-not-block

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2 responses to “Consumers actually don’t like online auctions”

  1. 366004ko says :

    I think this article holds some truth in it. In my personal experience it is indeed too much of a hassle to keep track of the bidding on lets say, Ebay. One has to keep checking back onto the website/application to ensure their bid was not outbid by someone else. This is very time consuming. I’ve had an experience where I noticed that I would be outbid every time seconds after I put up a bid on a particular item and this frustrated me to no end. This is how I stopped bidding on Ebay and just looked for items with a fixed price as you stated in your post.

    According to an article in the BloomBerg Business less than 15% of all who post Ebay listings are opting for an auction-only sale these days (http://www.bloomberg.com/bw/articles/2013-05-26/an-auction-most-ebay-users-dont-have-time-for-that). While some people do like auctions, most of the people do not have a liking to it for reasons that you have mentioned above. I know I will prefer to have fixed prices over auctions.

  2. 356859bb says :

    The blog you wrote is very similar to what I have thinking for a long time. Years ago there was still some excitement in bidding and winning. Currently this technique is so well known around the world that professional bidders or you mentioned ‘snipers’ take the highbest bid in the last second. And you thought you were bidding the last second.. Even the Huffington Post thinks eBay auctions are something from the past. People rather buy something directly than wait for an acution to end (http://www.huffingtonpost.com/2013/05/28/ebay-auctions_n_3346307.html). So I strongly agree with your post and companies such as eBay, Vakantieveilingen etc. should think about a change in their auction system.

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