Sunday, June 8, 2008

Auction as a Pricing model takes a hit on eBay

I have always though that auctions would be one important part of future pricing models on the Internet. It is an effective way to regulate demand and supply and also get access to othwerwise inaccessible things. Now, according to BusinessWeek, current events on eBay seem to prove me wrong. Apparently, people think that it is a hassle with auctions and they prefer fix-prices. 42% of the sold offerings are sold with fixed-prices – and the number is increasing.

If you think about it, it can make sense. Today, peoples’ time and attention are valuable. It is not worth the effort to save a small amount of money compared to that extra input of time the auction process demands. To that argument you should also include the additional risk which is inherent in doing business with strangers on auction sites like e.g. eBay.

However, I do not think this mean auctions being a non important pricing model. It all depends of what kind of offerings we are talking about. Yes, product which is in surplus and always possible to get access to may be suited for fix-prices. But in situations where there is a big difference between supply and demand, there I think auction is a relevant pricing model. An example, even though extreme, is tickets to a sports event where you have limited seats and huge demand. Here I think auction creates real value both for the seller and for the buyer. It is then only a matter of how desperate you want those tickets.

On eBay, a large portion of what is sold is maybe things which you can find in regular stores and on traditional internet shops. I do not know if that is the case - even though it is hinted in the article above. But if that is the case, it can explain why eBay gets hurt when the passion for auction proceedings subsides.

Update 1: It seems to be a lot on eBay's plate right now. The business model is under scrutiny from several different perspectives. Counterfeit - e.g. in fashion and luxuary related goods - is a problem on eBay and now are the court cases slowly building up according to BusinessWeek.

Update 2: That eBay has dissatisfied sellers is known. eBay seems though incapable to correct these problems. According to an article in ReadWriteWeb every effort to improve the situation seems only to degenerate the situation even more. Is this the beginning of a real down turn spiral or just a readjustment for the business model?

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