Mumbai University > Information Technology > Sem 7 > E–Commerce & E-Business

Marks: 10 M

Year: May 2013, May 2014

1. Introduction:

   i. Auctions have been highlighted as one of the new Business models for the internet.

   ii. It involves determination of the basis for product or service exchange between a buyer and seller according to particular trading rules.

2. Mechanisms of auctions:

   The different mechanisms of online auctions are as follows:

   i. Price discovery: The price discovery process (also called price discovery mechanism) is the process of determining the price of an asset in the marketplace through the interactions of buyers and sellers. Price discovery is different from valuation. Price discovery process involves buyers and sellers arriving at a transaction price for a specific item at a given time. It involves the following:

3. Buyers and seller (number, size, location, and valuation perceptions)
4. Market mechanism (bidding and settlement process, liquidity)
5. Available information (amount, timeliness, significance and reliability) including
6. futures and other related markets

7. Risk management choices.

   "Market" is broad term that covers buyers, sellers and even sentiment. For price discovery it is useful to think of the "Execution Venue”. The Execution venue is where the trades are made. An example of price discovery is in the traditional consumer auction involving bidding for antiques.

   ii. Efficient allocation mechanism: The sale of items those are difficult to distribute through traditional channels fall into this category. Examples include ‘damaged inventory’ that has a limited shelf life or is only available at a particular time such as aircraft-flight or theatre tickets. Lastminute.com (www.lastminute.com) has specialized in disposal of this type of inventory in Europe, not always by means of auctions.

   iii. Distribution Mechanism: This type of mechanism is basically used as a means of attracting particular audiences.

   iv. Coordination Mechanism: Here the prices are set based on the participant’s requirement, supply and demand. The auction is used to coordinate the sale of products to a number of interested parties; an example is the broadband spectrum licenses for 3G telecoms in the UK. Thus, the auction could also serve as a coordination mechanism for the supply chain. Different forms of auction and market mechanism change the nature of supplier competition, thus the buyer-supplier interaction. Channel coordination can be achieved if the market intermediary exerts effort to reduce the extent of information asymmetry, while restricting the buyer’s profit on the side payments.