Auctions and Entering new Markets
Auctions have come a long way, from the Dutch (descending-bid) auctions used to sell flowers, to electronic bidding for all types of products, most commonly known via eBay, and now auctioning of radio advertisements, a relatively new market for auctions.
eBay and Google have already tapped the cable television ad market for auctions, and according to the article, radio was eBay’s expansion of this current plan. In class we’ve learned about the four main types of auctions, namely ascending-bid, descending-bid, first-price sealed and second-price sealed. We also learned that auctions are the common medium for selling products whose value to customers is “unknown,” and so it is interesting to see that eBay, and Google, decided to start auctioning radio ads, which have existed for a very long time, and thus can be priced fairly easily by examining historical prices and statistics.
However, eBay’s unique selling point is that they target “last-minute ad buyers,” to take advantage of “extremely aggressive pricing.” eBay’s exploitation of last-minute ad buyers allows them to gain a positive payoff as such buyers are likely to pay more than their true value for a bid due to the lack of other options and high competition. With high demand and (presumably) low supply for ads, sellers benefit significantly.
Now, all of these decisions mentioned can be analyzed using game theory. For ad buyers, particularly last-minute buyers, they’re options can be represented as buy and don’t buy. Their opponent would be the general set of competitors. If these buyers do not buy a specific radio ad time period, then they gain nothing and risk a competitor buying it and benefiting from it. However, if they do purchase the ad, they have the potential to reach a larger audience of consumers and prevent another company from that privilege. The cost however, is the high price of the ad. This isn’t the conventional setup for a game theory analysis of a situation that we have used in class, but it is a situation that requires considering others’ possible decisions and trying to choose a best response nonetheless.