The online auction business model (internet auction, electronic auction, eauction, e-auction) is one in which participants bid for products

Product (business)

In general, the product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce ' lead or bring forth'. Since 1575, the word "product" has referred to anything produced...

 and services over the Internet

Internet

The Internet is a global system of interconnected computer networks that use the standard Internet protocol suite to serve billions of users worldwide...

. The functionality of buying and selling in an auction

Auction

An auction is a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder...

 format is made possible through auction software

Auction software

Auction software is application software that can be deployed as stand-alone software for commercial and/or charity live and silent auctions, that handles all aspects of conducting an auction. This software provides users the ability to register bidders, clerk sales, and cash out bidders...

 which regulates the various processes involved.

Several types of online auctions are possible. In an English auction

English auction

An English auction is a type of auction, whose most typical form is the "open outcry" auction. The auctioneer opens the auction by announcing a Suggested Opening Bid, a starting price or reserve for the item on sale and then accepts increasingly higher bids from the floor consisting of buyers with...

 the initial price starts low and is bid up by successive bidders. In a Dutch auction

Dutch auction

A Dutch auction is a type of auction where the auctioneer begins with a high asking price which is lowered until some participant is willing to accept the auctioneer's price, or a predetermined reserve price is reached. The winning participant pays the last announced price...

, multiple identical items are offered in one auction, with all winning bidders paying the same price -- the highest price at which all items will be sold (treasury bills, for example, are auctioned this way). Currently almost all online auctions use the English auction method.

Strengths of the business model

The strategic advantages of this business model

Business model

A business model describes the rationale of how an organization creates, delivers, and captures value...

 include:

1. No time constraints. Bids can be placed at any time (24/7
   24/7
   24/7 is an abbreviation which stands for "24 hours a day, 7 days a week", usually referring to a business or service available at all times without interruption...
   
   ). Items are listed for a number of days (usually between 1 and 10, at the discretion of the seller), giving purchasers time to search, decide, and bid. This convenience increases the number of bidders.
2. No geographical constraints. Sellers and bidders can participate from anywhere that has internet access. This makes them more accessible and reduces the cost of "attending" an auction. This increases the number of listed items (ie.: number of sellers) and the number of bids for each item (e.g.: number of bidders). The items do not need to be shipped to a central location, reducing costs, and reducing the seller's minimum acceptable price
   Ask price
   Ask price, also called offer price, offer, asking price, or simply ask, is the price a seller states she or he will accept for a good....
   
   .
3. Intensity of social interactions. The social interactions involved in the bidding process are very similar to gambling. The bidders wait in anticipation hoping they will "win." Much like gambling addiction
   Compulsive gambling
   Problem gambling is an urge to continuously gamble despite harmful negative consequences or a desire to stop. Problem gambling often is defined by whether harm is experienced by the gambler or others, rather than by the gambler's behavior. Severe problem gambling may be diagnosed as clinical...
   
   , some bidders may bid primarily to "play the game" rather than to obtain products or services. This creates a highly loyal customer segment. This can also skew the prices of items/services/goods in the auction.
4. Large number of bidders. Because of the potential for a relatively low price, the broad scope of products and services available, the ease of access, and the social benefits of the auction process, there are a large number of bidders.
5. Large number of sellers. Because of the large number of bidders, the potential for a relatively high price, reduced selling costs, and ease of access, there are a large number of sellers.
6. Network economies. The large number of bidders will encourage more sellers, which, in turn, will encourage more bidders, which will encourage more sellers, etc., in a virtuous circle. The more the circle operates, the larger the system becomes, and the more valuable the business model becomes for all participants.
7. Captures consumers' surplus. Auctions are a form of first degree price discrimination
   Price discrimination
   Price discrimination or price differentiation exists when sales of identical goods or services are transacted at different prices from the same provider...
   
   . As such, they attempt to convert part of the consumers' surplus (defined as the area above the market price line but below the firm's demand curve) into producers' surplus
   Profit (economics)
   In economics, the term profit has two related but distinct meanings. Normal profit represents the total opportunity costs of a venture to an entrepreneur or investor, whilst economic profit In economics, the term profit has two related but distinct meanings. Normal profit represents the total...
   
   .

Criticism

Auction sites, like garage sales, flea markets, classified advertisements and other independent sales venues, sometimes draw criminals wishing to sell stolen products, but for law enforcement organizations, finding stolen goods offered online is sometimes easier than more traditional detection methods.

Companies that use the model

• Allegro
• Anyvan
• Apex auctions
  Apex auctions
  Apex Auctions are a Brighton-based auctioneer who specialize in auctioning CNC and manual machine tools from engineering companies in the UK, US and Europe.In 2007 the company negotiated the sale of the world-famous Swan Hunter shipyard.- References :...
  
  
• Auctionair
  Auctionair
  Auctionair.co.uk is an online retailer based in the UK operating a sealed-bid auction system where bidders cannot see what others have offered.There are two bidding products, the High Bid and the Low Bid.- History :...
  
  
• BargAbid
• Bid4Assets
  Bid4Assets
  Bid4Assets, established in 1999, was the first online real estate auction website to operate in the United States. Bid4Assets auctions distressed real estate and personal property for private investors and the federal government. It serves the United States Marshals, the U.S. Department of Treasury...
  
  
• Bid on the City
  Bid on the City
  Bid on the City , launched in New York City in April 2009, is the first live online real estate auction site to use real time video and audio streaming. BidOnTheCity.com was co-founded by Albert Feinstein and Vlad Sapozhnikov with more than $3,000,000 of initial investment...
  
  
• Bidorbuy
  Bidorbuy
  Bidorbuy is South Africa's largest internet auction website, run by bidorbuy Ltd. Andy Higgins founded the site in August 1999 when the South African site was first launched...
  
  
• Bidtopia
  Bidtopia
  Bidtopia was an ecommerce site originally launched in 2007 as a private auction site for Warehouse86 Ventures, LLC. Paul St. James, owner of Bargainland, which had been the largest PowerSeller on eBay that same year, started the new enterprise in response to changes in eBay policies regarding high...
  
  
• BlueTrain
  WebTrain
  WebTrain Communications provides web conferencing services for educational training, business meetings, presentation webinars and live auctions. WebTrain is a privately held Canadian company established in 1999.-History:...
  
  
• The Debt Exchange
• eBay
  EBay
  eBay Inc. is an American internet consumer-to-consumer corporation that manages eBay.com, an online auction and shopping website in which people and businesses buy and sell a broad variety of goods and services worldwide...
  
  
• eBid
  EBid
  eBid is an online auction website founded in December 1998. eBid operates in twenty-one countries where it allows sellers, United Kingdom, United States of America, Canada, Australia , Ireland, Belgium, Austria, Italy, France, Germany, Spain, Netherlands, Denmark, Hong Kong, India, Norway, New...
  
  
• GunBroker.com
  GunBroker.com
  Gunbroker.com is an Atlanta, Georgia United States based auction website specializing in the sale of firearms. It was founded in 1999 by Steven F. Urvan, who serves as the CEO and Chief Technology Officer...
  
  
• Heritage Auction Galleries
  Heritage Auction Galleries
  Heritage Auction Galleries is the world's largest collectibles auctioneer and the third largest auction house, with over $700 million in annual sales and 600,000 online bidder-members...
  
  
• Hobby Markets Online
  Hobby Markets Online
  Hobby Markets Online was an early internet auction company and which ran a series of person-to-person marketplaces for high-end collectibles. The Company is cited as the second person-to-person online auction marketplace after eBay and launched its first web-based auction on October 15, 1995,...
  
  
• Listia
• Lixtor
  Lixtor
  Lixtor is an Internet-auction website operating in New Zealand since 2005, as a free alternative to currently dominant "paid" online-trading website in New Zealand, TradeMe....
  
  
• Manion's
  Manion's
  Manion's International Auction House is an online auction website, and is the world's largest online auction house specializing in historical military collectibles. There are currently over 50,000 members, and over 20,000 auction items per month...
  
  
• MercadoLibre.com
  MercadoLibre.com
  MercadoLibre.com or MercadoLivre in Portuguese is a website dedicated to e-commerce and online auctions. It is eBay's Latin American partner. MercadoLibre is Latin America's number-one e-commerce site...
  
  
• Mission Capital Advisors
  Mission Capital Advisors
  Mission Capital Advisors is a loan sale advisory firm, with offices in New York City; Austin, Texas; Palm Beach Gardens, Florida; and Newport Beach, California...
  
  
• Overstock.com
  Overstock.com
  Overstock.com , also known by its shortcut, O.co, is an online retailer headquartered in Cottonwood Heights, Utah, near Salt Lake City. Founded in 1997 by Robert Brazell, under the name D2: Discounts Direct, it was a pioneering online seller of surplus merchandise which, upon its failure in 1999,...
  
  
• Oztion
  OZtion
  Quicksales is an online auction site based in Australia, and the second largest auction website in Australia. According to the site there are more than 750,000+ items available for auction or purchase and as of 15 September 2009 there are over 430,298 member accounts.-History:The OZtion website...
  
  
• Prosper.com
• Priceline.com
  Priceline.com
  Priceline.com is a company and a commercial website that helps users obtain discount rates for travel-related purchases such as airline tickets and hotel stays. The company is not a direct supplier of these services; instead it facilitates the provision of travel services by its suppliers to its...
  
  
• Shpoonkle
  Shpoonkle
  Shpoonkle.com is an interactive reverse auction web site that provides a marketplace where lawyers and potential clients can connect. Shpoonkle aims to help its users find more affordable legal assistance. It also aims to provide a venue where lawyers can find casework.-History:Shpoonkle was...
  
  
• Swoopo
  Swoopo
  Swoopo was a bidding fee auction site where purchased credits were used to make bids. Prior to changing its name to Swoopo in 2008, the website was called Telebid. Swoopo was operated by Entertainment Shopping AG and based in Munich, Germany...
  
  
• Up4Sale (merged with CraftMe.co)
• Tarisio Auctions
  Tarisio Auctions
  - Tarisio Auctions :This is the main page for Tarisio Auctions, the online string instrument auction house. For the Italian violin collector, see Luigi Tarisio....
  
  
• TradeMe
  TradeMe
  Trade Me is the largest Internet-auction website operating in New Zealand. Managed by Trade Me Ltd the site was founded in 1999 by New Zealand entrepreneurSam Morgan who sold it to Fairfax in 2006 for NZ$700 million...
  
  
• Tradus
  Tradus
  Tradus is an online auction company that operates in Europe. The company, a subsidiary of South African media group Naspers since March 2008, operates across Europe using many different brands...
  
   (former QXL)
• uBid
  UBid
  uBid.com manages an online auction and shopping website that offers both goods sold directly by the company and items sold by pre-approved uBid Certified Merchants.-Overview:...
  
  
• uShip
  UShip
  uShip, Inc. is an Internet company that operates uShip.com, a global online marketplace for shipping services. Individuals and businesses list items they need shipped in a variety of categories, such as household pets, boats, or heavy industrial equipment, and transportation service providers place...
  
  
• Yahoo!
  Yahoo!
  Yahoo! Inc. is an American multinational internet corporation headquartered in Sunnyvale, California, United States. The company is perhaps best known for its web portal, search engine , Yahoo! Directory, Yahoo! Mail, Yahoo! News, Yahoo! Groups, Yahoo! Answers, advertising, online mapping ,...
  
  

See also

• Auction sniping
  Auction sniping
  Auction sniping is the process, in a timed online auction , of placing a winning bid at the last possible moment , giving the other bidders no time to outbid the sniper. This can be done manually, or by software...
  
  
• Online auction tools
  Online auction tools
  Online Auction tools is application software, that can either be deployed on a Web server or a Desktop. This software is used by customers of online auctions such as eBay or Oztion....
  
  
• Auto auction
• Marketing
  Marketing
  Marketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...
  
  
• Reverse auction
  Reverse auction
  A reverse auction is a type of auction in which the roles of buyers and sellers are reversed. In an ordinary auction , buyers compete to obtain a good or service, and the price typically increases over time...
  
  
• Auction software
  Auction software
  Auction software is application software that can be deployed as stand-alone software for commercial and/or charity live and silent auctions, that handles all aspects of conducting an auction. This software provides users the ability to register bidders, clerk sales, and cash out bidders...
  
  
• Strategic management
  Strategic management
  Strategic management is a field that deals with the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of firms in their external environments...
  
  
• Tendering
• Unique bid auction
  Unique bid auction
  A unique bid auction is a type of strategy game related to traditional auctions where the winner is usually the individual with the lowest unique bid, although less commonly the auction rules may specify that the highest unique bid is the winner...