Sneaker Auction on StockX
https://www.cnn.com/2019/09/25/tech/stockx-detroit-sneaker-startup/index.html
On September 26, 2019, CNN released the article, This Billion-dollar Startup is Turning Sneakers into a ‘Stock Market,’ written by Michelle Toh. The article first explains how StockX promotes worldwide sneaker business and carefully examines what makes StockX so successful. StockX is the world’s first online “Bid/Ask” marketplace, in which sellers place Asks and buyers place Bids. Before StockX even launched, the reselling process was complicated and too risky. People trade their sneakers on eBay or on some random Facebook groups. Because of the fact that there was no authentication process, buyers were constantly worried about getting duped online. On the other hand, the reselling platform of StockX guarantees both buyers and sellers a secure and convenient way to trade sneakers. The authentication process that is provided by StockX effectively helps the company to build trust between the users and encourages reliable transactions. Yet, StockX’s innovation does not end here. It introduces the idea of IPO, which usually stands for “initial public offering.” Here, it stands for “Initial Product Offering.” StockX carries out its IPOs through the process of an auction. The buyers place anonymous bids with a value that they are willing to pay on the items that they wish to purchase. The number of winners is based on the number of items in stock, and all winners need to pay a clearing price, which is the lowest winning bid of the item. According to StockX, there were more than 10,000 bids placed on 800 pairs of shoes for only three days during the testing period of the concept. Clearly, this idea is a huge success. Also, during a regular reselling process, the transaction automatically happens if there is an Ask from a seller that matches a buyer’s Bid. Otherwise, the Bid remains active until an Ask lowers to match with the Bid.
The article reminds me of what we learned in this class. A few weeks ago, we talked about different types of auctions, and the strategies to optimize the outcomes. For instance, in a first-price auction, the highest bidder wins the auction, and he pays what he bid. Since the winning bidder pays his own bid, it will result in a payoff of 0 if he becomes the highest bidder by choosing to bid with his true value. Therefore, the optimal strategy for buyers is to bid values that are lower than their true values. The Descending Bid (Dutch) is similar to the first-price auction, in which the price goes down until someone accepts it. In a second-price auction, the highest bidder wins, and he only needs to pay the second-highest bid, which is always lower than his bid. Therefore, bidding the true value is a dominant strategy. The Ascending Bid (English) is the type of auctions, in which the price goes up until there is only one bidder left. At a glance, this concept can be applied to StockX’s auction process described in this article. StockX’s buy-and-sale process for IPO items is an example of the second-price auction. More specifically, winners of an auction pay the lowest winning bid, that is the clearing price. Therefore, the dominant strategy for buyers on StockX is to bid their true values, and the worst case is to become the lowest winning bidder getting a zero payoff.