Product attribute as an important dimension in developing online auction strategy for businesses

• Main Author: Xiao, Wen, 1968-
• Other Authors: Dan Ariely.
• Format: Others
• Language: English
• Published: Massachusetts Institute of Technology 2005
• Subjects: Engineering Systems Division.
• Online Access: http://hdl.handle.net/1721.1/9160

Thesis (M.Eng.)--Massachusetts Institute of Technology, Engineering Systems Division, 2000. === Includes bibliographical references (leaves 69-70). === Online auctions represent one of the most interesting developments in electronic commerce. On the one hand, it presents great opportunities - enabling businesses to reach large group of buyers, liquidate products at market-driven prices, and lower transaction costs. On the other hand, it makes sellers much more vulnerable because they have to compete with other vendors in a transparent and level trading environment. Therefore, it greatly undermines sellers' traditional source of competitive advantage based on channel power, brand reputation, and customer loyalty. Moreover, online auction puts tremendous pressure on product prices, which is likely to offset sellers' gain from increased reach and lower transaction costs. As a result, businesses must carefully evaluate the pros and cons of online auction before investing in it. The goal of our research is to develop a framework which companies can use to determine whether online auction is an appropriate strategy for them by analyzing their products. Our analysis focused on two dimensions of the product characteristics: commodity-specialty and tangible-intangible attributes. We want to examine what attributes appeal most to the bidders in a highly competitive auction environment and what auction formats are most effective for product with certain attributes. For this study, we conducted a laboratory experiment where we auctioned specific products whose attributes represent different scales along the commodity-specialty, tangible-intangible spectrum. Here is a summary of our findings: 1) In commodity market, the competitiveness of the auction format and high buyer sophistication put tremendous pressure on product price, cutting the sellers' already-razorthin profit margin. On the other hand, sellers of specialty products are more likely to leverage the market dynamics and benefit from the broad reach and flexible pricing. 2) In online auction, tangible attributes play a much more important role in bidders' determination of the product prices. Tangible attributes provide an easy measure for bidders to assess the value of the products. 3) As bidders become savvier about the bidding process, they tend to collude with each other to drive down the price collaboratively. The transparent trading environment provided by online auction enables bidder to explore and speculate on others' intention and use this information to adjust their own bidding strategy. As a result, the bids they submitted reflect more of their perception of how much other would pay for the product rather than their own valuation of it. 4) Different auction formats indeed have different impacts on the auction results. For example, some auction formats encourage bidders to reveal their true valuation of the product early in the bidding process and other foster speculation and collusion among bidders. By carefully designing their implementation strategy, sellers can leverage the difference of the auction formats and maximize their benefits. The structure of this paper follows a top-down approach. Chapter 1 presents an overview of the competitive landscape of business-to-business electronic commerce. It defines three emerging eMarketplace models - aggregator, auction, and exchange - and provides an in-depth analysis of their impacts on a company's supply chain strategy. Chapter 2 focused on the most popular of the three eMarketplace models - online auction. It examined the driving force behind the proliferation of business online auction, the variety of auction markets, and the economics of different auction formats. The second half of the paper concentrates on our research. Chapter 3 outlines our research questions and methodology. Chapter 4 layouts the experiment results and our analysis. Finally, Chapter 5 summarizes our findings and discusses their implications in the supply chain management. === by Wen Xiao. === M.Eng.