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Online Auction

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Auctions are as modern as today's technology, yet as old as mankind. The Internet, however, has expanded the scope and reach of this market mechanism beyond the wildest dreams of its traditional purveyors. Unlike traditional auctions that were limited in scope, online auctions have brought this mechanism to the masses, providing them with an all-encompassing selection of goods they can buy or sell.

In recent years we have seen the emergence of electronic marketplace that leverages information technology to create more efficient markets. The Internet has dramatically changed how people see and buy goods. Millions of globally dispersed consumers now engage in competitive exchange via bidding and can set prices that reflect real-time supply and demand as efficiently as any trading floor. The physical limitations of traditional auctions such as geography, presence, time, space, and a small target population virtually disappear in online settings. The Internet provides a critical mass of consumers located on different continents, who could, with a click of their mouse buttons, participate simultaneously in multiple auctions. Participants are also relieved of the social awkwardness and time-consuming nature of face-to-face hagglingÐ'--many simply automate their bidding, letting the computer take care of negotiation.

The ability to bring together buyers and sellers at such a massive scale may be both a blessing and curse for the effectiveness of electronic marketplace. On the other hand, it is a blessing since buyers reap the benefits of greater product diversity with potentially lower prices and sellers are able to reach a greater pool of potential buyers.

Auctions on the internet represent a fascinating new exchange mechanism. Every day, hundreds of thousands of goods are auctioned online, from Star Wars action figures to laboratory ventilation hoods. Internet auctions already represent billions of dollars in transactions, and have been growing at a rate of more than 10% per month.

A real world-world example of successful online marketplace is eBay, a popular online auction flea market which offers over 3mln items for sale at any given time for anyone, from anywhere.

This paper presents a tour of the online-auction industry, in particular eBay. What is the volume of trade? What types of goods are sold? What fee structures do online auctioneers charge? With online auctions still in their infancy, this paper presents a snapshot of this industry.

The remainder of this paper is organized as follows. Section II gives a brief history of the development of auctions on the Internet. Section III describes the business models utilized by the auction site, eBay. Sections IV discuss online payment method, PayPal. Section V describes the fraud that eBay customers are facing on regular basis. Section XV concludes.


The first auction supposedly took place in Babylon around 500 B.C., in which marriage auctions were held annually in every village. The prices ranged from a higher bid for the more beautiful women to a negative bid and dowry for the less attractive women.

Since 500 B.C. auctions have transitioned from their traditional marriage auctions into their present state of online auctions.

Many people mistakenly equate the World Wide Web with the Internet, but Internet auctions took place even before the Web was widely available. Even before the late-1993 release of NCSA Mosaic, the first Web browser for personal computers, there were already a number of auctions taking place on text-based Internet newsgroups and e-mail discussion lists.

The earliest Web-based commercial auctions began in 1995 , Japanese company Aucnet, when they went online with automobiles for auction 1995, including Onsale (May) and eBay (September). These ascending-bid auctions were the first to take advantage of the technologies offered by the Web, including the use of automated bids entered through electronic forms, and search engines and clickable categories to allow bidders to locate their items of interest. As with the newsgroup auctions, these Web auctions lasted between several days and several weeks each, with conveniently asynchronous bidding. By contrast, traditional ascending-bid auctions require all participants to gather in the same room at the same time.

Onsale started primarily as a retail merchant of refurbished computers and electronics, but using the auction format to differentiate itself from other online retailers. Its CEO, Jerry Kaplan, felt that auctions would make shopping 'fun and entertaining' for their customers. After experiencing considerably less growth than did auction-listing site eBay, Onsale undertook a change in strategy. In October 1997, Onsale added Onsale Exchange, an auction-listing service very similar to that of eBay, which Onsale eventually transferred to Yahoo! in 1998. Also in 1998, Onsale announced that it would begin to offer a fixed-price selling format for electronics at wholesale prices (Onsale at Cost), and in July 1999 it merged with Egghead, another online retailer offering both auctions and fixed prices.

By contrast, eBay started out by encouraging individuals to list their own auctions online. From the beginning, most of the items on eBay have been collectibles, but their listings include a wide diversity of other types of items as well. Sellers on eBay may choose a number of different parameters for each auction: number of days it will run, minimum bid level, and an optional secret reserve price. The site has grown very rapidly, at a rate of approximately 12% per month in 1998-99.

III. eBay Inc.

If you search on Google for just about any name-brand product, near the top of the results list you're likely to find links to items auctioned on eBay. The newspaper classified section's worst nightmare, eBay is a global marketplace for everything, including cosmetics, electronic gadgets, used books, antique statuettes, and celebrity memorabilia. Savvy newlyweds can furnish their homes from eBay with the most elaborate china patterns, grandfather clocks, oriental rugs, or 19th-century cabinetry, all at a substantially lower price than local retailers or antique shops would charge.

In its unique way, eBay has made the world a smaller place. The birth of e-commerce phenomena eBay began with a Pez obsession. In the spring of 1995, during dinner with then-boyfriend Pierre Omidyar, Pam Omidyar (they recently married) dreamt of an online destination where she and other Pez lovers could talk about and trade their Plasticine candy dispensers. Pierre's interest was piqued. So, with



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