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eBay Auctions

One commonality that most people fail to see that links Google to eBay is the idea of auctions. As we learned in class, Google accumulates the majority of its revenue through auctioning off advertisements located at the top and bottom of general searches. However, during class, we never had the opportunity to explore one of the most widely known consumer-to-consumer and business-to-consumer marketplace: eBay. Much like Google, eBay makes most of its revenue from auctions. They charge 5 cents for fixed priced Books, DVDs & Movies, Music, and Video Games listings. “For auction-style and fixed price listings in all other categories, [eBay charges] 30 cents” (Loeb). Thus, eBay’s total revenue is directly affected by its transaction base. However, the fascinating aspect of this picture is not how these companies make money, but how they auction.

When we look at Google, we know that they utilize a Generalized Second Price auction to help facilitate the distribution of ads among each web search. Yet, we never explored the fundamentals to eBay auctions. Primarily, when we look at eBay, part of its elementary core differs from the ideas we have studied in class. Aron Hsiao’s article, “Understanding the eBay Auction Automatic Bidding System,” explores these different concepts. For example, eBay uses a type of auction where the highest bidder wins but pays slightly more than the next highest bid (Hsiao). Additionally, auctions only last for a specified amount of time, and bidders can utilize the automatic bidding system. To use this system, the bidder must “bid the absolute maximum that [they are] willing to pay” (Hsiao). If the bidder’s maximum is higher than the current bid, then eBay automatically bids up by a small increment so that he or she is the new highest bidder. Furthermore, this system hides the bidder’s absolute maximum so there is no way to know the minimum needed to barely outbid the competition. The final aspect that differs from other auctions that we have studied in class is the fact that there are programs that utilize “sniping,” a last-minute automatic bid that schedules maximum bids moments before the auction ends (Hsiao). This strategy can dramatically spike up the price by the end of the auction, something that can seem heinous to new eBay members. Although not discussed in class, eBay auctions are an interesting divergence from the course material that we already know, but in the end, it is still similar in the sense that it utilizes auctions.


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October 2017