The meaning of auctions and how they work
We can say that auction is a market mechanism by which purchaser make tenders and traders (dealers) place offers. The competitive and dynamic nature are the main characteristics of auctions by which the final price is reached, also auctions are an applicable method of commerce and trading for generations; transact with services and products for which traditional marketing channels are inefficient.
The Internet, nowadays, supplies an infrastructure for doing auctions at lower price with many more dealers and purchasers.
2. Dynamic pricing and Types of auctions
Auction has a major characteristics which it’s based on the dynamic pricing. “Dynamic pricing” refers to a purchase operation (transaction) where the price or the cost is not fixed.
On the other side, prices in supermarkets, department stores, and the other storefronts are fixed because they are catalog prices. Different types of auctions are available, each one of them has its own procedures and motives. Based on how many purchasers and traders are involved, it is customary to assort dynamic pricing into four main categories, and each of them can be done off-line or online.
Types of auction:
A) One Buyer, One Seller
Each side can use bartering, bargaining, or negotiation. The final price will be determined by the power of bargaining, demand and supply in the item’s market, and maybe business-environment factors.
B) One Seller, Many Buyers
Forward auctions are used here by the dealer (the price increases with time in these auctions). Another example of this type is Sealed-bid auctions. In a first-price sealed-bid auction, the product is granted to the highest bidder while in “Vickrey auction” (a second-price sealed-bid auction); the product is granted to the highest bidder at the second-highest price that was bid.
C) One Buyer, Many Sellers
Auctions are (biddings) in this category and they are used mainly in B2B or G2B, in which one buyer solicits bids from many sellers or suppliers. Here, because of the price reduces sequentially, and the lowest bid wins, these auctions are called reverse auctions.
Another type in this category is “Name-your-own-price model”, which is pioneered by Priceline.com.
D) Many Sellers, Many Buyers
In this type, sellers and their asking prices and buyers and their bidding prices are matched based on the quantities on both sides. Typical examples of this configuration are stocks and commodities.
3. E-auctions and the benefits of electronic auctions over traditional (off-line) auctions.
Electronic auctions (e-auctions): auctions conducted online, have been in existence for several years on local area networks and were started on the Internet in 1995.
Electronic auctions are superior to traditional auctions, the reason is because they do not suffer the same limitations. In the other words, Electronic auctions can occur over greater time periods and are not limited by location since they take place in...