overview

This profile looks at online consumer to consumer (C2C) and business to consumer (B2C) auctions.

Auctions are an area of electronic commerce that has caught public attention - nothing like the global electronic flea market for a hidden treasure or a discreet gamble - and has resulted in some of the more problematical writing about the 'new economy'.

Journalists and gurus have gushed about "the eBay phenomenon" - "a step toward the creation of the first worldwide economic democracy" - or how you can buy a human kidney or two with just a few keystrokes.

One US academic even enthused that "nowhere is the impact of the web more evident than in the case of auctions", complete with cyberlingo about digital communities, disintermediation, wired democracy and nary a concern about consumer issues or real market sizes.

The guides on Consumers, Money, Taxation, the Information Economy and Security look at issues such as trust, identity, alternative payment schemes.

There is a supplementary note about eBay.

    orientation

As with much of the 'internet economy', hard statistics are few and projections are uninhibited.

Various sources have suggested that C2C auctions would grow from US$1 billion or US$1.5 billion in 1998 to US$2.3 billion in 1999 or US$15.5 billion in 2001, with a population increasing from 1.5 million users to 17.5 million users in the same period. Others forecast annual revenue of US$19.6 billion in 2004 or US$34 billion in 2005. One of the better overviews is David Lucking-Reiley's 1999 Auctions on the Internet: What's Being Auctioned and How? (PDF).

Projections for B2C and B2B auctions feature similar growth (Forrester consulted the goat entrails to come up with a figure of US$52.6 billion for B2B auctions in 2002). Actual turnover seems to be smaller - reflecting the growth of traditional sectoral or corporate-specific EDI exchanges - and the profitability of most B2B exchanges has been disappointing. There is a lucid discussion in Global Economic Commerce: Theory & Case Studies (Cambridge: MIT Press 1999) by J Christopher Westland & Theodore Clark.

Most observers date online C2C auctions from 1995, with initial activity on US private networks such as Prodigy and America Online followed by growth in line with consumer adoption of the web. Uptake of C2C is likely to steady as growth of the overall online population in advanced economies slows.

Although the first major site was that of OnSale, it was quickly eclipsed by eBay (sometimes claimed to have up to 40% of C2C items by number and 60% by value) - a C2C specialist - and the auction arm of Yahoo! There is disagreement about the shape and extent of the industry: some sources suggest that there around 300 sites, others claim that over 1,800 sites are active across the globe. Traffic appears to be converging on a cluster of 'pure play' and 'extended' sites such as Amazon.com, Bid.com and Ubid.com.

     used kidneys

The popular image of C2C looks like eBay or an oh-so-tempting offer for a pair of slightly used kidneys.

An auction is essentially an exchange of information to determine a price for delivery of goods or services (see for example the paper on The Value Propositions of Dynamic Pricing by Bob Gressens & Chris Brousseau). The goods could be a bit of plastic to hold candy, an autographed sweat-shirt, memorabilia or a body part. Jurisdictional disputes about cross-border auctions of Nazi militaria and literature have highlighted concerns about the governance of cyberspace and the regulation of hate speech.

There's been more attention to scams, particularly those involving purported dealings in body parts. In September 1999 an offer of a human kidney on eBay generated bids of up to US$5.8 million; bidding for an unborn human baby reached US$100,000. (US law fortunately forbids such retailing of organs - your own or your nearest & dearest's - but we've noted recurrent offers of sperm.)

Problems with management of C2C auctions- or merely the credulity of some vendors/buyers - are evident in the claim that an attempt to auction 500 pounds of marijuana on eBay generated bids of US$10 million.

     and theory

The economic literature about auctions - particularly regarding game theory and pricing - is very large and continues to grow, although much of the writing is quite hermetic.

Paul Klemperer's 1999 Auction Theory: A Guide To The Literature (PDF) is one of the more accessible bibliographical introductions. There's been surprisingly little scholarly attention to online consumer auctions; as we note on the following page much of the economic and marketing research has concentrated on questions of trust.

Much of the IT literature about bots, dynamic pricing mechanisms and filters is of a similar opacity if you're not a specialist. We've highlighted particular works here. For a concise introduction see Internet Auctions, a 1999 paper (PDF) by Manoj Kumar & Stuart Feldman.

For a broader introduction see Ralph Cassady's Auctions & Auctioneering (Berkeley: Uni of California Press 1967) and Reinventing the Bazaar: A Natural History of Markets (New York: Norton 2003) by John McMillan .

     data mining

One output from any auction process is information about participant perceptions of value, ie the range of prices that an individual consumer (and group of consumers) will pay for particular goods/services and the range that vendors will use in offering those goods/services. Offline that data collection and analysis has resulted in significant revenue for niche publishers such as Glass' Auto Guide and Book Auction Records.

Major online auction sites - and, more broadly, any major online retailer that uses dynamic pricing (eg airlines selling seats online) - are in a position to collect data that is of value for their own operation and is of interest to participants or third parties.
Data mining is likely to be a source of revenue for operators of the major auction sites, given that they handle millions of transactions, and for some sites with a narrow range of offerings that relate to particular demographics, products or services.

In 2003 eBay for example started to sell aggregate pricing data on commonly sold items, with Intuit using information to help its customers value items donated to obtain a tax deduction.




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