MGMT 382: E-Commerce

Sealed-bid first price auction

-All buyers submit their bids privately -buyer with the highest bid wins; pays the price (s)he bid

B2C: Commoditylike and Digital

Commoditylike -Same no matter where you purchase it -Examples: books, music, movies -Price and ease of ordering are important Digital -Purchased and delivered over the Internet -Best product type for B2C e-commerce -Examples: Music, software

Open auctions

English,Dutch

Impossibility

Essentially no auction whatsoever can be simultaneously incentive compatible for both buyers and sellers! -if buyers are induced to reveal their true values, then sellers have incentive to lie, and vice versa -the only way to get both to tell the truth is to have some outside party subsidize the auction

Business to Consumer (B2C) e-commerce

when a business sells products and services to customers who are primarily individuals -B2C is the glitzy e-commerce like iTunes, eBay, etc

B2B E-Commerce

when a business sells products and services to customers who are primarily other businesses -Where all the e-commerce money is -Basically, it's about businesses doing business with other businesses -Supply chain management (from Chapter 2) is a big part of B2B e-commerce

Why auctions?

-For object of unknown value -Flexible -Dynamic -Mechanized -reduces complexity of negotiations -ideal for computer implementation -Economically efficient!

Dutch auction

-Open -One item for sale -Auctioneer begins high; above the maximum foreseeable bid -Auctioneer lowers price in increments -First buyer willing to accept price wins; pays last announced price => What happens to price?

English auction

-Open -One item for sale -Auctioneer begins low; typically with seller's reserve price -Buyers call out bids to beat the current price -Last buyer remaining wins; pays the price that (s)he bid => What happens to price?

Sealed-bid auctions

-first price -second price (Vickrey) -continuous double auction

Sealed-bid second price auction (Vickrey)

All buyers submit their bids privately buyer with the highest bid wins; pays the price of the second highest bid

E-Commerce Business Models

B2B: conistint.com B2C: dell.com B2G: lockheedmartin.com C2B: priceline.com C2C: eBay.com C2G: eGov.com G2B: export.gov G2C: medicare.gov G2G: disasterhelp.gov

Reverse auction

Buyer driven (Reverse Auction) This approach favors buyers as prices tend to fall over time, competition between the sellers ex. priceline

B2C: Convenience Versus Specialty

Convenience -Lower priced -Purchased frequently -Example: common food items Specialty -Higher priced -Purchased less frequently -Example: Stereos, computers

Auction

Definition [McAfee & McMillan, JEL 1987]: a market institution with an explicit set of rules determining resource allocation and prices on the basis of bids from the market participants

B2B: MRO Versus Direct

Maintenance, repair, and operations (MRO) materials (indirect materials) - materials necessary for running a company but do not relate to the company's primary business activities -Similar to convenience items in B2C Ex. Office supplies, repair parts, lubricating oils

B2B auctions and ecommerce

Online B2B marketplaces have been established for more than a dozen major industries, including the automotive; pharmaceuticals; scientific supplies; asset management; building and construction; plastics and chemicals; steel and metals; computer; credit and financing; energy; news and information; and livestock sectors. http://www.alibaba.com/ http://www.indiamart.com/

Reverse auctions

Price is put first

Incentive compatibility

Telling the truth is optimal in second-price auction Suppose your value for the item is $100; if you win, your net gain (loss) is $100 - price If you bid more than $100: you increase your chances of winning at price >$100 you do not improve your chance of winning for < $100 If you bid less than $100: you reduce your chances of winning at price < $100 there is no effect on the price you pay if you do win Dominant optimal strategy: bid $100 Key: the price you pay is out of your control

Direct Materials

materials that are used in production in a manufacturing company or are placed on the shelf for sale in retail environments -Relate directly to a company's primary business activities -Quality, quantity, and delivery timing are important