Gamification and the Online Retail Experience
As college students deal with more academic and social responsibilities as the school year progresses, new demands surface, such as proper attire for the changing seasons or class materials for the next semester. Therefore, online shopping has become the preferred, revolutionized way of shopping, as it is accessible right at the comfort of one’s home and efficient, time and cost wise. Students are always looking for ways to save more and spend less, and online shopping platforms, such as eBay and Amazon, have marketed their products and services using game theory to satisfy both parties.
The prisoner’s dilemma is an example of game theory that Amazon takes into consideration through its Prime feature, free shipping. While Amazon covers the cost of shipping and handling or the direct merchant includes the shipping in the final cost, the customer has the luxury of simply paying the listed price for the item only without the worry of any extra applicable fees. Thus, Amazon’s dominant strategy is providing the free option towards customers because customers would be more likely to spend money if they only pay the listed price. Amazon’s dominant strategy proves successful, as according to CRIP co-founder, Josh Lowitz, “In the past year [members] grew 11%, compared to 43% from the first to second Prime Day and 35% from the second to third,” (April Berthene, DigitalCommerce360). Both parties are satisfied: the customer saves money from shipping, and Amazon profits from the sale, although there is a slight loss from covering these shipping fees.
eBay provides the option of auctioning off products at a starting price determined by the seller and participating in auctions as well. eBay runs more of a tradition auction in that the seller sets a starting price, the buyer submits a bid slightly lower than their valuation in the case that the previous bid is lower, and the highest bid wins after a set amount of time.
For example, the starting price for a pair of sneakers is listed at $30. My valuation for these sneakers would be $50. Buyer 1 starts off with a bid of $35. Because my valuation is $50 and I determine the price I pay (payoff is independent of other buyers), I would bid $40 because my payoff is more lucrative if I bet lower than my valuation. However, if buyer 1 bids $55, I would lose the auction because if I bidded any higher than my valuation of $50, I would obtain a negative payoff.
Amazon and eBay provide many opportunities for college students to obtain a positive payoff from their valuations and expected extra fees like shipping. These methods of sales allows these two companies to become the top successful companies in the world that are widely used for spending money conservatively with the best results.