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Winners Beware

A new mobile marketplace called iBuySell is introducing the concept of rapid-fire sales to online auctions. In contrast to the more traditional ascending-bid auctions, where bidders gradually raise the sale price of an item from an established minimum until only one bidder remains at the final sale price, iBuySell will consist of descending-bid auctions where sellers gradually reduce the sale price of an item from an established maximum until an initial bidder accepts what then becomes the final sale price. As in the ascending-bid format, the sale price cannot drop below a prescribed minimum established by the seller. However, in this new format, the price will be reduced every second that the auction continues and the entire auction will last a maximum of 90 seconds.

“iBuySell combines shopping for incredible deals with a little fun and suspense, making it a more engaging experience,” says founder and CEO Kaustuva Mukherjee. “The buyer is always intrigued as to whether or not they’ll be the first one to get the item.” While this model certainly helps sellers exhibit multiple products and potentially move large inventories in a short time frame, it also presents buyers with a new variation of the phenomenon known as the ‘winner’s curse’.

Regardless of auction type, the value of an object for sale is either different for various buyers or approximately the same for all buyers. Consumer goods have private independent values for each buyer whereas commercial goods that buyers intend to resell have a common value, the price they will receive upon resale, but it is unknown. Bidders in a private independent value auction base their bids on the value they place on the item for sale. Bidders in a common value auction base their bids on their estimate of the value of the item for sale. As such, the winning bidder in a common value auction learns that their estimate was the highest among all bidders and therefore has a high probability of being an overestimate of the object’s actual value. This situation is known as the ‘winner’s curse’ as it leads to the winner of the auction likely losing money on the resale.

Although iBuySell targets consumer goods, its unique time constrained format places buyers in a new potential ‘winner’s curse’ conundrum. Bidders can choose to only bid on items at or below their private independent value, but because of the accelerated time frame the probability of winning any given auction at their value will be very small and will only decrease as the price rapidly decreases and more bidders become involved. Therefore, a bidder would have to bid on items above their value in order to increase their odds of winning an auction. As any marketplace is first dependent on sellers, iBuySell may have discovered a lucrative business model. ‘Winners’ beware.

Deals in real time; new iBuySell app puts twist on reverse auction

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