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Shifting of eBay From Auctions to Using Posted Prices

by Dani

The market of eBay has been dominated by auctions as a way of market mechanism, as eBay has been the trend setter for this mechanism. Auctions bring the buyers and the sellers to the eBay platform following competitive procedure. The eBay auction initiative has changed millions of prospects into customers, making their shopping experience cherishing and interesting (Wei and Lin 1). Nevertheless, off late trend has shifted from open auctions to posted-price. Proprietary eBay data indicates how eBay sellers highly prefer posted-price sales to open auctions. From sellers’ perspective, this preference for posted-price over auctions is endogenous. There is ambiguity over market mechanisms’ behavior; how participants are affected and sales materialize, as the trend of posted-price is initiated by sellers. The reason of this compositional changeover in the products being sold cannot be explained as evolving or causal. Rather profits from auctions started decreasing. Buyers also started showing disinterest in the auction market mechanism besides the shrinking margins of the sellers that prompted a shift to the trend of posted prices. Einav et al. (1) find the reason of reducing margins more important for the changeover in online market design from open auctions to posted price. Although the shift has taken place but still auctions are preferred in certain sales by the online sellers; these are prevalent, as sellers prefer them to posted prices for distinct items sales.

The market of eBay connects sellers and buyers on the online platform, presented through its highly interactive website. It is a market with no fixed prices for ever and information is available at just the click of the mouse; both buyers and sellers are bargaining continuously for a better transaction from their own perspectives. eBay is the perfect example of selling goods through auctions, which it has been doing since 2001, propelling its growth through the development of proxy bidding. It allows buyers to place a maximum bid while the machine responds to third-party offers up to that amount. Bidders’ offline or physical appearance in real time is not needed for taking part in the ever-changing business scenario for auction bidding, which decreases transaction costs (Einav et al. 1).

Shifting of eBay From Auctions to Using Posted Prices

Starting in January 2003 and finishing in January 2012, Figure 1 illustrates the historical pattern of online trading, which has shifted drastically, but has switched toward auctions owing to falling sales since January 2008. As seen in the graph, the sudden drop in the share of active listings can be attributed to the decision in September 2008 to allow “good until cancelled” posted price listings, which culminated in a drop in the share of listings and transaction volume devoted to auction transactions to below fifty percent. The sharp drop in 2008 reflects a change in eBay policy that rendered listed price listings more cost-effective and enabled them to be available for longer periods of time. The graph lacks a number of other sales models, such as “hybrid” auctions that qualify for a pre-emptive posted price discount, or posted rates with the option to create a dropping bid. There is a decline in the amount of listings and purchases in these groups (Einav et al. 1).

A related design for Google searches containing the words “online auctions” and “online rates” as seen in Figure 2. This is an intriguing industry design, not because of the exponential development of online shopping, but because of the selection of sales channels and the rivalry within them (Einav et al. 1).

Sufficient data is available to differentiate opposing causes for the changing online market trends, as taken from eBay. One reason of this shift can be corroborated from the changing composition of online sellers or in the products being showcased online. eBay example, at least, does not corroborate the shift from auctions to posted prices; rather the shift has happened within the routine groupings of sellers and goods to be sold. The next probability is a shift in consumer tastes and choices (Einav et al. 1).

Other extended reason attributed to reducing trend of the auctions as a market design by eBay has been the reducing price finding benefits of auctions across time because making comparison between different prices has became easier, or another associated reason is that higher competition has reduced profit margins of the sellers (Einav et al. 2).

There is sufficient empirical data over decline of auctions. Earlier, auctions were the ideal medium for selling distinct and idiosyncratic items, particularly by fresh sellers. Decline in auctions cannot be attributed to compositional shifts, as there are very small changes in the selling pattern of various cohorts of sellers. It reveals that rather than the compositional change in sellers, it was the shift in sellers’ incentives that has significantly affected the market design change. Data reveals that eBay’s marketplace turnover was 9.3 billion dollars in 2001, which reached to above $67 billion as of 2012. Distinct items sold on eBay used to be like its first item, which was a broken laser pointer. In the year 2002, eBay started permitting sellers to name items at posted prices selecting the “Buy it Now” (BIN) format. Figure1 above reveals that the changeover from auctions to posted prices was smoother (Einav et al. 4). Two interesting features emerge from the eBay marketplace related to pricing mechanisms, one is the presence of both formats at a time – auctions and posted prices, and the second is what type of sellers choose auctions and why. No doubts, the reasons behind are visible. It is due to increasing competition online between companies like eBay that facilitates buyers to compare prices in no time, prompting sellers to choose the posted price option because the online retail is highly competitive market. Another reason is that customer demand for idiosyncratic items is relatively little. Who would like to bid for unique items like a broken laser pointer? Demand of distinct items is therefore, nominal only. Distinct and vintage items can carry higher price tags, and are preferable to be sold through online auctions. Because items of daily use, such as clothing, accessories, and cosmetics are sold by many sellers competitively, their prices are posted. There is no logic in selling them through auctions, as sellers won’t succeed in selling them. On the contrary, if rare items of historic importance are listed through auctions, people of special trait and taste or pursuing a hobby of collecting distinct items would buy them, such as the spinning wheel of Mahatama Gandhi could fetch a seller millions. A seller would prefer and certainly put such an item on auction, setting a minimum bid, but any used item otherwise won’t even get sold through posted price. This is the difference between items to be auctioned and items to be posted price. Unique items have no duplicate, such as a lock of teen heartthrob Justin Bieber’s hair won’t have a duplicate. Data reveals that in the year 2009, eBay selling of individual listings was nearly 75 percent through auctions relatively to 57 percent via duplicate sales (Einav et al. 6). It derives that market for auctions is still there but it is on the reducing relatively to posted-prices marketing of goods.

The trade-offs between auctions and posted rates, as well as market selection decisions, are determined by a variety of variables, including declining uncertainty about an item’s value, increased market competitiveness, and increased demand for comfort; these factors benefit posted prices. Nonetheless, it resembles the simple data architecture, suggesting a strong process through which auction listings may raise selling possibilities while decreasing prices. An examination of auction and posted price transaction returns at different contact points reveals the challenge of accounting for differences between the types of goods offered via auction and posted price, as well as the types of retailers conducting online sales. Also after taking into account their approximating characteristics, products listed by auction may be quite different from products listed by posted price. The rating of the free-text product information, the attractiveness of posted photos, and the seller’s brand are all potential stumbling blocks. Furthermore, details on object peculiarities is lacking, except for a tiny amount of products with catalogue identifiers; only the seller-selected listing title and a smattering of divisions have detail tags (Einav et al. 2).

Sellers arbitrarily list the same items, either at the same moment or over time, when modifying their selling format or other price metrics, which is a typical feature of eBay’s website. Where a vendor lists the same commodity by auction and by posted price, certain instances from the eBay sales dataset from 2003 (when auctions were the most prevalent sales design) to 2009 (when posted prices had lagged behind the prevalence of auctions) provide a “apples-to-apples” distinction. It depicts the expansion of a large “auction discount.” In 2003, auction rates were on average 5% higher than equivalent advertised transactions. The discount had grown to over sixteen percent by 2009. The drop in price cannot be due to dealers decreasing their auction set rates. In reality, as compared to equivalent posted rates, reserve prices usually improved. Furthermore, all consumer formats suffered a decline in growth rates over time, but not in a particular manner (Einav et al. 2).

Seller incentives are essential since they use their versatility to set their posted rates or reserve prices. Changes in values between collections of identical combinations of selling probability and sale price that can be realized with different mechanisms can be used to quantify this. Market curves at the “listing-level” should be used to describe the metrics. By contrasting the measurements from 2003 to 2009, it is apparent that listing-level demand has declined for both formats, with auctions suffering a greater decline. This demonstrates that sellers prefer the price posting format to auction, especially in categories like collectibles, jewelry, and clothes, where products are comparatively distinguished. The high level of listing rivalry seems to have played a bigger position in categories like electronics and computers, which have seen a similar shift toward posted pricing (Einav et al. 2).

Other proof of shifting buyer appetite is found by Einav et al. (3), as compositional changes in the community of customers may not seem to have affected the higher demand for posted rates. Nonetheless, there is substantial variation in the category of customers at every contact stage. Buyers who shop a lot on eBay seem to be bidding more on auctions for great deals during bidding. This means that buyer diversion could be a factor in sellers sticking to the auction model for products that aren’t especially uncommon. In this viewpoint, the logic of auctions moves away from price and toward the usage of discounts and other discount strategies used in brick-and-mortar shops. Platform payments and the rapid speed of industry adaptations may also explain the hybrid usage of sales formats.

Other academicians for study of the pattern for price posting are listed by Einav et al. (4), like Hammond (2010), who stresses the option between auctions and price posting in the online selling of compact disks. Sellers with a higher opportunity cost prefer posted prices, according to his analysis, and seller heterogeneity can explain the prevalence of both mechanisms. The usage of auctions and price posting on the eBay website for the selling of Major League Baseball tickets is examined by Bauner (2011), who finds that not only opportunity costs, but also plurality among consumers, who are divided into “fixed price lovers” and “neutrals,” contribute to the prevalence of auction and fixed price sales. Sweeting (2012) argues that auction rates are usually lower than posted price levels in a separate study of Major League Baseball tickets that reflects on shifting price setting. Finally, Ariely and Simonson (2003) and Malmendier and Lee (2011) equate auction prices to previous posted prices in order to understand that auction prices may be unnaturally high, and they discuss whether bidding trends can preclude traditional economic models from forecasting outcomes.

Regarding improving the trading organization of eBay (IIMK 545), it should focus on widening it further to secure its share from increasing competition. Since 1999, the marketplace for online shopping started getting competitive with not only startup firms but firms like Yahoo and Amazon, having huge user bases. eBay needs to focus more on expanding the core business of both market mechanisms, auctions and posted prices. It should be willing for more strategic acquisitions. There is still huge potential in the market for antique items for selling them through online auctions for reaping high margins. Actually, equal attention needs to be paid on both market mechanisms for improving the organization’s market mechanism.

Works Cited
  • Einav, Liran., Farronato, Chiara., Levin, Jonathan., and Sundaresant, Neel. “Sales Mechanisms in Online Markets: What Happened to Internet Auctions?” April 2013. 29 January 2014. <http://www.stanford.edu/~leinav/Auctions_Decline.pdf>.
  • Gopalkrishnan, J. and Gupta, V.K. “eBay: The World’s Largest Online Marketplace”- A Case Study.” Conference on Global Competition & Competitiveness of Indian Corporate. 29 January 2014. <http://dspace.iimk.ac.in/bitstream/2259/510/1/543-549.pdf>.
  • Wei, Zaiyan and Lin, Mingfeng. “Auction vs. Posted-Price: Market Mechanism, Lender Behaviors, and Transaction Outcomes in Online Crowdfunding.” November 2013. 29 January 2014. <http://econ.arizona.edu/docs/Job%20Market/Wei_jobmarket_Auction%20vs%20%20Posted-Price_Zaiyan%20Wei.pdf>.

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