The online auction market eBay. Why is online auction a perfect competition market?


Term Paper, 2018
18 Pages, Grade: 1,3

Excerpt

Table of Contents

Summary

List of Figures

1 About the Auction markets
1.1 What is an Auction
1.2 History of Auctions
1.3 Types of Auctions
1.3.1 English Auction
1.3.2 Dutch Auction
1.3.3 First-price sealed-bid auction or blind auction
1.3.4 Vickrey-Auction or Second Price Sealed Bid Auction

2 Online Auction
2.1 Development of the online auction
2.2 Differences between traditional auctions and online auctions
2.3 Creation of online auctions

3 Different Competition Markets
3.1 Competition
3.1.1 Perfect Competition Market
3.1.2 Monopolistic Competition
3.1.3 Oligopoly
3.1.4 Monopoly
3.2 The Online auction platform eBay
3.2.1 Company history and economic data

4 German laws of auctions

5 Conclusion

6 Bibliography

Summary

This work deals with online auction platforms in the Perfect Competition Market. The list of contents of the project work provides an overview of the individual sub-points and where to find them. Domestic work is divided into four parts. In the first part, traditional auctions are defined in more detail. After the basics of the topic have been presented and the different auction types have been described, online auctions are worked out from this understanding in the second of this work and how online auctions deal with the traditional auctions Distinguish. In the third part of this work, different competitive markets are explained in order to deal with eBay. After the company was summarized, the fourth part of the work follows, where the German Auction Laws are discussed. The sources used to write this project work are documented in the literature directory, which is listed according to the conclusion.

List of Figure

Illustration 1: Common Auction Designs (Shankar, R. & Bose, S., 2008)

Figure 2: Traditional Auction vs. Electronic Auctions (Jerry Goa, 2000)

Figure 3 : Bid history (eBay 2019)

Figure 4: eBay's annual net revenue from 2013 to 2017 (in million U.S. dollars) © Statista 2019

1 About the Auction markets

1.1 What is an Auction

An auction represents a consumer-to-consumer sales situation in which a product or service is named a bidder by a prospective buyer, and bidding competitors buy at the highest possible price. Auctions can traditionally take place in an auction house as well as online on the internet. Auction goods include perishable products such as fruits, vegetables, fish and cut flowers, as well as wood, wine and much more. High-quality goods, which are usually offered in auction houses to private individuals on the one hand stamps, antiques, works of art but also pawned objects, objects from bankruptcies and used goods. (Hennig & Schneider, 2018)

Furthermore, an auction is specified by specific rules. For example, it determines what form the bids have, whether only one or more goods will be auctioned off, when they will be placed, how the winners of the existing bids will be determined, and what prices be collected by the winners. (Briskorn, 2018)

1.2 History of auctions

Auction markets are one of the oldest forms of market. Already in antiquity before circa. 2,500 years ago, there were auctions. Women were auctioned on wedding markets once a year. In the Roman Empire, goods were regularly sold in the atrium. Larger auctions were organized by, among others, the emperors Caligula and Marcus Aurelius to pay off debts by selling their private possessions. In 193, one of the most comprehensive auctions was conducted. After the execution of Imperator, the whole Roman Empire was auctioned off. The auctions did not prove themselves until the 17th century. 1674 opened the oldest still existing auction house "Auktionsverket". In the following years, vendors regularly offered for sale in coffee houses and taverns. With the increasing popularity of the auctions, especially for the art auctions, the auction houses Christie's and Sotheby's were opened in the 18th century. Further, in the second half of the 19th century, bids were increasingly being sent in letters and representatives were instructed to take part in auctions with the names of the bidders. As a result, the "mail-sales" developed, where no auction room was needed because they only took place with letter bids.

Still in modern times, the process at a particular location remained essentially the same, and the wares were publicly sold to the highest bidder at an advertised time. Interested parties can pre-check the objects and products before each auction. There will be an operational bid that will be increased in predetermined increments until a no-limit is awarded. (Schmeißer, 2013)

1.3 Types of Auctions

Auctions differ by their bidding rules and the type of goods to be auctioned. This article distinguishes between four standard auction types and briefly explains them. These standard models are not only used in traditional auction theory but are also common in online auctions.

Abbildung in dieser Leseprobe nicht enthalten

Illustration 1: Common Auction Designs (Shankar, R. & Bose, S., 2008)

1.3.1 English Auction

The classic auction is also called the English auction. The advantage of the auction lies in its simplicity and awareness. It takes place in an auction house, where the auctioneer starts with a minimum price at which the owner is ready for sale. The selling price depends on the person who makes the highest bid. The bids are made openly and ascending. In the end, the highest bidder receives the contract for the object to be auctioned. Each bidder may make bids multiple times. The concept can be used well for all types of products and services. An English auction always takes place in a certain location at a certain time. On the Internet, neither spatial nor temporal binding play a role. Practically at any given time, auctions can be conducted on the Internet under a specific URL and repeated in a similar form. (Amor, 2000)

1.3.2 Dutch Auction

At the Dutch auction, a starting price is determined, which is then reduced over time. Therefore, the auction is also called a "reverse auction". Here the auctioneer takes place with a maximum price for the object and its price until a bidder finds himself. In contrast to the English auction bidders also have no opportunity to react to an action of the other bidders. As a result, Dutch auctions tend to be faster than English. Auctions of flowers for dealers in Holland. Fresh flowers from the greenhouses are offered for the flower auction. The starting price is relatively high and drops in short intervals. (Amor, 2000)

1.3.3 First-price sealed-bid auction or blind auction

In this auction form, every interested party gives a single and unalterable price hidden. This usually happens in writing and is delivered in a sealed envelope. The bids are collected and opened and published at the same time. The bidders do not know the bids of their bidders. The highest bidder wins the bid and pays the price he has bid. The principle behind this auction is not to give bidders the chance to react to the bids of other providers and to change the respective bids accordingly. It is quite possible that the bidder who has the highest bid for a good, not necessarily bought this. This form of auction is usually used in the awarding of construction contracts. (Amor, 2000)

The secret maximum price auction runs through the process according to the principle of a tender and is therefore often used in demand auctions. In the case of demand auctions, each potential supplier submits an offer and the cheapest receives the bid. (Wörz, 2001)

1.2.4 Vickrey-Auction or Second Price Sealed Bid Auction

This second-price auction is characterized by the fact that the highest bidder in a covert auction is awarded the bid, but only has to pay the price of the second-highest bid. The bidders set, rather than a classic auction, a price that corresponds to their actual value. Since the idea goes back to the Nobel laureate William Vickrey, the second price auction is also called Vickrey auction. As early as the 19th century, covert second-price auctions were regularly carried out. (Schmeißer, 2013)

2 Online Auction

2.1 Development of the online auction

With the Internet, a new form of auction has developed. Add to that steady waxing of companies like eBay. Online auctions bring retailers as well as shoppers together on a website to buy and sell products and services. Just about anything can be offered on the internet, from children's stuff to "immoral ones like, for example," call boys. " In the online platforms, the contract is concluded that a certain amount of time has expired. At a real auction, that's not the case, while there are still bidders who may be higher, the auction wouldn't be abruptly canceled. So that would not be in the interests of the parties (auctioneer, seller and buyer). (Kober, 2018)

Just about anything can be offered on the internet, from children's stuff to "immoral ones like, f or example," call boys. " Hobby and leisure items are the most popular. Over 27 million Germans have already auctioned goods or services at an online auction. Hobby and leisure items are the most popular. (Klinger, 2010)

The internet is turning more and more people into casual sellers. Three out of four internet users aged 14 and over (76 per cent) have already sold or auctioned something online in Germany. That equates to about 41 million people a year, an increase of over 40 percent compared to 2012. That's the result of a representative survey commissioned by high-tech association Bitkom. (Krösmann, 2014)

2.2 D i ff erences between traditional auctions and online auctions

„ In the physical world, dynamic pricing is nearly impossible to carry out in any meaningful way, because it is difficult simply “to get all the buyers and sellers together in the same place at the same time.” However, in cyberspace, “the Internet reduces these inefficiencies by allowing buyers and sellers to find each other, along with the information they need to make intelligent decisions.” (Abramson & Means, 2001, S.96)

Online auctions differ from traditional auctions in some features. Figure 2 is essential differentiators.

Abbildung in dieser Leseprobe nicht enthalten

Figure 2: Traditional Auction vs. Electronic Auctions (Gao, 2000)

2.3 Creation of online auctions

Already in 1979, the first Online auctions took place in a computer system called MicroNet (later renamed CompuSer). Meanwhile, the computer system was bought by AOL. The popularity of used items grew in the early 1990s. The bidders were able to contact the provider by e-mail and send their bids or send the bid to the newsgroup, which was very popular at the beginning of the nineties. The provider then decides who will receive the contract. This is a secret auction, as the prospective buyers do not know each other's offers and each makes only one bid. In 1993, some items were auctioned by email related to the rock group "Greatful Dead." Subsequently, the number of online auctions increased rapidly. In addition, the market research institute Agorics estimates that the number of professionally operated auction web platforms has risen to more than 7000.

Many online auctions fall into the category "Internet flea market with auction opportunities." Due to the popularity of these websites, things did not go so well in the retail advertising business of newspaper publishers. As a result, eight of the largest US newspapers have joined the business themselves with the joint takeover of the online auction house "Auction Universe." With the founding of the online auction house eBay in 1995, the auction on the Internet became an economic boom and has enjoyed great popularity ever since. (Amor, 2000)

2.4 Auction platforms on the Internet

The auction is a popular way to put used items up for sale over the internet. Anyone who buys goods at an online auction will then be delivered via the shipping route. With 177 million active users, eBay is one of the largest and most dynamic online auction houses in the world. But eBay is far from the only online auction house. (Fast Facts eBay) In addition to eBay, the best-known charts of online auctions include MyHammer and Hood.de, as well as many other auction platforms. With almost 10 million customers, Hood.de, which was founded in 1999, is now one of the largest online marketplaces in Germany. Around 10 million offers run through the site every day. For private sellers, the use is completely free and relatively inexpensive for commercial prospective buyers. The range is not as wide as on eBay. Much of the products are sold at a fixed price, optionally presented with a negotiation function, auction, power auction, Dutch auction and in your own Hood shop. (Über Hood.de)

Germany's largest auction platform, MyHammer, is known for brokering orders for crafts and service providers. For clients, the use of the portal does not entail any costs. An order to be awarded will be advertised by a private individual and potential companies will be able to submit their offer to do so. The customer goes through the orders received and awards them to the company, which on the one hand can offer very cheaply and does the work in a timely manner. The auction will take place as part of reverse auctions. (Über MyHammer)

3 Different Competition Markets

Economists have identified four types of competition: perfect competition, monopolistic competition, oligopoly and monopoly. This section defines the four different types of competitions.

3.1 Competition

„ Competition is the rivalry among businesses for sales to customers. A seller must be efficient to be able to compete against other sellers for potential sales to customers. If a firm should become inefficient, its costs will become too high, forcing its price higher than the market price. Buyers will then choose more competitively-priced products. The inefficient seller is faced with a choice of becoming efficient or going out of business.” (Haeberle, 2008, S.11)

3.1.1 Perfect Competition Market

Perfect competition exists when many consumers buy a standardized product in a large number of small businesses. The goods offered by the various sellers are correspondingly consistent. Since no seller is influential enough to influence the price, sellers and buyers accept the given market price. Competitors are free to enter the market, do business or leave the market.

„ A n example is the market for milk. No single buyer of milk can influence the price of milk because each buyer purchases a small amount relative to the size of the market. Similarly, each seller of milk has limited control over the price because many other sellers are offering milk that is essentially identical. Because each seller can sell all he wants at the going price, he has little reason to charge less, and if he charges more, buyers will go elsewhere. Buyers and sellers in competitive markets must accept the price the market determines and, therefore, are said to be price takers.” (Mankiw, 2008, S.266)

3.1.2 Monopolistic Competition

Monopolistic competition is a mixture of perfect competition and monopoly and has basic features – differentiated products, many buyers and sellers, as well as a simple entry and exit of the market. There are many sellers in such a market who offer a differentiated range. Products that differ somewhat or are perceived as different, although they serve a similar purpose. Products can be distinguished in a variety of ways, including quality, style, practicality, location and brand name. This type of product differentiation allows each individual supplier within such a market to determine the price and quantity of their goods. Firms make normal profits in the long run but could make supernormal profits in the short term.

(Hall & Lieberman, 2012)

A good example of this is the fast food industry of monopolistic competition. Burger King cooking is hamburger over open flame and McDonald's with its golden arches, so it can be seen that the two competitors are trying to highlight their product and are meant to satisfy everyone. (Haeberle, 2008)

3.1.3 Oligopoly

Oligopoly is a market (or industry like the automotive industry) in which a small number of companies operate independently. The usual sellers are quite large companies and large investments are brought to market, which means that this market has a limited market entry. On the supply side, we have more than one company and on the demand side, a large number of buyers. In principle, oligopolies can result from various forms of agreements that reduce competition and lead to higher prices for consumers. This, of course, has negative effects and is annoying for the consumers, who have to pay a higher price for a good. Over time, that leads to similar products with similar prices. The central feature of oligopolistic competition is that the profit of one provider depends on the actions of the other providers. Each provider tries to calculate or anticipate the actions of its competitors. In the sense of game theory, profit maximization becomes a strategic decision. Game theory made it possible to formalize important ideas for competition in oligopolistic contexts. (Friedmann, 1983)

3.1.4 Monopoly

In terms of the number of sellers and the degree of competition, monopolies face perfect competition. In perfect competition, there are many small businesses, none of which can control prices. They simply accept the market price determined by supply and demand. In a monopoly, however, there is only one seller on the market who, as a monopolist, has an easy time increasing his profits. A monopoly market could be a geographical area, such as a city or a region, and does not necessarily have to be a whole country. „The key requirement for preservation of a monopoly is exclusion of potential rivals from the market. One way to achieve this result is by means of some specific impediment that prevents the establishment of a new firm in the industry. Economists call such impediments barriers to entry.” (Baumol & Blinder, 2007, S. 219)

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Details

Title
The online auction market eBay. Why is online auction a perfect competition market?
College
University of Applied Sciences Köln
Grade
1,3
Author
Year
2018
Pages
18
Catalog Number
V514055
ISBN (eBook)
9783346102461
ISBN (Book)
9783346102478
Language
English
Tags
Ebay Auction Auktionen
Quote paper
Angelika Brilz (Author), 2018, The online auction market eBay. Why is online auction a perfect competition market?, Munich, GRIN Verlag, https://www.grin.com/document/514055

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