Analysis of Popular Online Auction Sites: eBay and Alternatives

This report provides a comprehensive analysis of popular online auction sites, focusing on eBay, Amazon, and Yahoo. It explores key aspects such as price restrictions, market equilibrium, and bidding strategies, including second-price auctions and last-minute bidding dynamics. The report delves into the application of Game Theory in determining bid prices and end times, comparing the hard-close approach of eBay with the extended-time rules of Amazon and Yahoo. It examines the similarities and differences in how these platforms facilitate buyer-seller interactions, including registration fees and auction finalization processes. The findings aim to assist both buyers and sellers in making informed decisions about which online auction platform best suits their needs, considering factors such as pricing, bidding rules, and the overall user experience. The analysis incorporates economic concepts to provide a deeper understanding of the competitive landscape of online auctions.

RUNNING HEAD: ANALYSIS OF THE POPULAR ONLINE AUCTION SITES
Popular Auction Sites
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RUNNING HEAD: ANALYSIS OF THE POPULAR ONLINE AUCTION SITES
Abstract
Online auctions have become popular over the years with millions of potential buyers and
sellers interacting in an online marketplace. This paper analyzes the popular auction sites by
providing the similarities and differences between eBay and other online auction sites. eBay is
the largest online site providing services with existence in the market for more than 10 years. An
auction is a marker where competitive prices are designed by monopoly sites. Price is the major
factor considered in an online auction. This study discovered that there are no registration fees
when selling items on both eBay and Yahoo. The second price, the first bid is an auction where
bidders submit bids on a paper different from the first price as the highest bidder pays an amount
than that paid by the second-highest bidder. eBay, Amazon, and Yahoo are similar in this case as
the sellers submit their first reservation amount and the bid increases subsequently above the
highest bid submitted earlier. When finalizing an auction, eBay and Amazon differ as eBay uses
the concept of hard to close to support last-minute bidding while auction operations in Amazon
use similar rules and can be delayed if there is a need. The idea of the Game theory is used by
eBay, Amazon, and Yahoo to determine bid prices and end time. Thus, the findings of this paper
will help buyers and sellers choose the best online auction to choose from.
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Introduction
Web-based auctions have become the most universal instruments for electronic
commerce. Most people have become attracted to online auction and e-commerce due to the
increasing demand for custom-made products and the commercial contrast of shopping. Online
auctions are important in enhancing the interactions of outcomes not possible in physical
auctions (Choudhary & Shivendu, 2017). This behavior has been intensified by the increase in
the number of people accounting to more than 50% in the US as per the end of 2019. In 2016, the
worldwide number of people using electronic devices was 63% and in 2018, people using
smartphones in the United States had reached 78%. According to a report by Global Digital,
4.4M people are active internet users using mobile gadgets causing a larger percentage of
internet traffic (Terence, Brian, Spaid, Wood, & Sulin, 2018). Therefore, this paper uses the
materials provided to provide the analysis, comparison, and contrast of the online auctions and
eBay concerning the various economic concepts.
Background
eBay is the largest online auction site that provides a wide interaction stage for many
items. eBay is a developed online auction enabling people from different places globally can
interact with each other through buying and selling different items (Terence, Brian, Spaid,
Wood, & Sulin, 2018).The website allows different people to buy and sell to be brought together
to look, buy and sell different items. This auction is what is referred to as the English auction and
it is popularly known as “an ascending sequential bid auction” (eBay, 2013). In this case, bidders
observe what other people bid for and make the decision of whether to increase the bid or not. In
this auction, the product is normally sold to the highest bidder. According to the report by the US
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Census Bureau (2018, Q1), eBay has increased its users to more than 220M in 2016 which has
provided a 23% rate of growth in the US.
An online auction is a service in which buyers and sellers bid for their items. Although
Amazon is not as big as eBay, it is among the major online auction sites(Terence, Brian, Spaid,
Wood, & Sulin, 2018).The site has exploded over the years from being a bookstore to a most
trusted online auction.
Yahoo is an online auction site that maintains auction services and a market share of
below 3%. The site is an active player in the online auction with a range of items and users. Like
both eBay and Amazon, Yahoo brings together online auctioneers to trade various products
(Einav, Theresa, Jonathan, and Neel, 2015). The online auction platform has become very
competitive as in Japan and Yahoo had overcome eBay in 2002 (Einav, Theresa, Jonathan, and
Neel, 2015). The difference between Yahoo, Amazon, and eBay arises from different economic
questions such as the equilibrium behavior.
Results
Price Restrictions and Market Equilibrium
Online auction sites are two markets involving two types of users benefiting from
interactions on the same platform. According to Terence, Brian, Spaid, Wood, and Sulin (2018),
the auction is a competing market where their price structures are designed by competitive and
monopoly platforms to involve all market sides. This explains the concept of price restrictions in
economics. Both sites compete for an exclusive association with the user as the market affects
the price competitiveness of the site in the market (Alvin & Ockenfels, 2017). The sites compete
for the loyalty of users through the mobility of their online services.
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In a market, intermediaries in the auction market play the role of exclusives in providing
services. The exclusive nature of this market means that users are allowed to register on many
platforms (Caillaud & Jullien, 2015). Thus, this theory applies in online auctions in that sites
should provide restrictions for users to choose one service as the absence of competition for
exclusive bidders allows every platform to fix their prices to gain more profits (Park & Bradlow,
2015). In equilibrium, intermediaries are differentiated through their charges on transaction and
registration fees. In terms of online auction sites, both eBay and Yahoo do not charge their users
registration fees for their services (Einav, Theresa, Jonathan, and Neel, 2015). At first, Yahoo did
not charge its users' service fee for listing their items both Yahoo and eBay currently charge
users fees when they post their items.
The second price, sealed bid
In this auction, bidders concurrently surrender their bids on a paper but different from the
first price, sealed-bid auction since the highest bidder pays the amount paid by the second-
highest bidder. eBay and Amazon run second-price auctions where a bidder can submit his/her
proxy bid in advance and the subsequent bid is listed as the lowest incremental price above the
second-highest submitted earlier as the proxy bid (Alvin & Ockenfels, 2017). As the subsequent
reservation fees are provided, the bid increases by the smallest incremental amount until the
highest substitute bid is surpassed.
The difference between Amazon and eBay comes from the rules of finalizing an auction.
On eBay, auctions are hard to close while in Amazon, the operations of auctions have the same
rules and can be prolonged if there is a need when the scheduled time has already passed ten
minutes without any bid (Kalyanam & McIntyre, 2018). According to Krasnokutskaya and
Terwiesch (2018), the percentage of bids on the last minutes of auction is significantly greater on
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eBay than Amazon, and added practice is the reason for the bidders to bid earlier on Amazon and
later on eBay.
Last-minute bidding is a situation where bidders fail to submit their pay early despite
being advised by auctioneers and sellers to submit their maximum readiness to bid. For instance,
eBay advises bidders to make their bids earlier based on second-price auctions. In eBay, late
bidding is considered as the greatest reaction to increasing bid (Alvin & Ockenfels, 2017). This
means that bidding when closing the auction will not provide the incremental bidder enough
period to react, thus, sniper bidding on an incremental auction is likely to win the bid at his/her
original low bid (Bauner, 2017). Sometimes, late bidding is regarded as price war behaviors as
the best reaction plus other corrupt bidders who try to increase the prices through the use of shill
sellers to bid against the substitute bidder (Einav, Theresa, Jonathan, and Neel, 2015). Thus, in
eBay auction, bidding the true value of a seller is not a dominant strategy is said to be a wrong
correspondence to a one-time sealed bid second price online auction (Sébastien, Devanur,
Huang, & Niazadeh, 2019). The main feature of eBay auction is the hard close where the time to
end the bid is closed before it begins. At the end of time, the highest bidder wins and there is no
acceptance of new bids.
On the other hand, Amazon is based on a long-time rule. The site is based on the concept
of extension of time. However, the Amazon auction benefits from sniping especially with an
auction with a fixed time limit as it has an instinctive extension (Kalyanam & McIntyre, 2018).
Sniping is common on eBay since it is the best response for different strategies. For instance,
bidding during the end of an auction does give a person sufficient time to respond, and thus, a
sniper competes with an incremental bidder might win the auction at the low bid of the other
bidder. Such auction contains a focused incremental bidder aggravating a response in an event
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that a bid has been placed (Einav, Theresa, Jonathan, and Neel, 2015). Hence, in Amazon
auction, bidding late does not have any advantage and definitely, there is no benefit of delaying a
bid of an individual to a situation that there is a chance that time will not be enough time to
submit the bid effectively (Pinker, Seidmann, & Vakrat, 2018). Amazon provides a fair chance to
all buyers to place their bids before the scheduled time of closing elapses. This gives bidders the
chance to respond to every bid on time before the closure of an auction.
On the other hand, Yahoo gives sellers the right to decide the end time of an auction. People
listing their items on Yahoo have the right to choose the option of the format of hard close and
extended time (Surowiecki, 2017).
The Game Theory
Game theory studies and analyzes the strategic behavior of people responsible for making
decisions in social interaction. This theory analyzes different social interactions such as pricing
strategies and auctions (Coey, Brad, & Brennan, 2015). There are two players in an action game,
the sellers and bidders. The players compete against each other meaning bidders and sellers
compete among and against each other for the auction and the prices. In the same way, the
competition between sellers is for the sake of business and the concern of other prospective
bidders (Einav, Theresa, Jonathan, and Neel, 2015). Bidders decide on what, when, and how
much to spend on a bid.
All online systems allow the bidders to tell the prices they want to pay. Then the site
makes the bid for the bidder based on their prices. For instance, if a bidder decides to bid for 50
dollars, and the second-highest bid is 40 dollars, the bidder will get the auction at a fee slightly
higher than 40 dollars contingent to the provided minimum incremental value allowed (Einav,
Theresa, Jonathan, and Neel, 2015). However, if the highest bidder submits a price of 54 dollars,
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the bidder will likely lose. In the Game Theory, the bidder might feel uncertain as they were
outbid since he/she was not willing to pay a price higher than 50 dollars (Cullen & Chiara,
2015). This system values the efficiency of an auction. The bidder ready to pay more wins the
auction. The seller will also sell his/her item at the best cost. Bidders who try to cheat get
incentives. Amazon, eBay, and Yahoo are similar in this case as they use the Game Theory to
determine the prices and end time of bids (Terence, Brian, Spaid, Wood, & Sulin, 2018).
However, most auctions listen in Yahoo exhibit hard close behavior, thought others might
assume that sellers behave irrationally.
Conclusion
With the emergence of many online market auctions, bidders and sellers are faced with
the dilemma of deciding which site to auction their items. This paper focused on comparing and
contrasting eBay, Yahoo, and Amazon in terms of the cost of listing a product, rules of finalizing
an auction, and the probability of the item being sold. This will help individuals desiring to
auction products to maximize value and profits from online auctions.
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