Focus THEME

which is the lowest price the seller is will-

AUCTIONSAND BIDDING ON THE INTERNET: ing to accept. Detailed information on
AN ASSESSMENT every item for sale is available online. For
high value items, additional information
BY EFRAIMTURBAN,CALIFORNIASTATE UNIVERSITY,LONG BEACH,USA* may be obtained via e-mail. Bidders look
at the descriptions and then start the bid-
ABSTRACT want or they pay too much. Also, in many ding by sending an e-mail or filling out
Electronic commerce (EC) activities are cases, the bidders do not have much time an election form. The biddings, which
growing rapidly on the Internet. One area to examine the goods. Since bidders must may last for a few days, are shown on a
that receives little publicity is that of auc- usually come to the auction site, many page at the host's Website, updated con-
tions and bidding. However, these inter- potential bidders are excluded. Similarly, tinually to show the current highest bids.
related activities can become a major EC it may be complicated for sellers to move Names of bidders are kept coded to main-
factor due to the creation of special online goods to the auction site. Commissions tain privacy. Most auctions are live; there
brokering services as well as electronic are fairly high, since a place needs to be you compete in real time against others.
auctions and bids offered directly by pri- rented, the auction needs to be advertised,
vate and public organizations. This pa- and the auctioneer and other employees Many sites have certain etiquette rules
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per provides a discussion of the benefits need to be paid. Electronic auctioning re- that must be adhered to in order to con-
and a description of the goods and serv- moves these deficiencies. d u c t fair business. Haggle Online
ices traded. (www.haggle.com), which allows private
Electronic auctions have been in exist- individuals to put up their merchandise
INTRODUCTION ence for several years. Notable are the for sale (free of charge, Summer 1997),
Auctions and biddings have been estab- auctioning of pigs in Taiwan and Singa- has a page dedicated to inform their us-
lished methods of commerce for genera- pore (e.g., see Neo 1992) and the auction- ers of these rules. As with many other
tions. These methods deal with products ing of flowers in Holland which was com- auction sites, Haggle Online offers a place
and services for which the conventional puterized in 1995 (see Van Heck et al. where "honest, well-meaning individuals
marketing channels are ineffective or in- 1997), but these were done on local area can offer their stuff for sale to other hon-
efficient. They can expedite the disposal networks. Auctions on the Internet started est, well-meaning individuals." The em-
of items that need liquidation or quick in 1995. They are similar to offline auc- phasis on honesty is important. If mis-
sale, they offer trading opportunities for tions, except for the fact that they are representation is made one may sue the
both buyers and sellers which are not done on a computer. Host sites on the auctioneers as well, even though the auc-
available in the conventional channels, Internet act like a broker, they offer serv- tioneers make it clear that they are not
and they assure prudent execution of con- ices for sellers to post their goods for sale responsible for presentations made on the
tracts. and allow buyers to bid on those items. Website. The auctioning companies see
Most auctions open with a starting bid the use of their services as an ideal chan-
The Internet provides an infrastructure for nel for selling people's goods and war-
executing a u c t i o n s a n d bids much rant off any "spammers," con-artists or
cheaper, with many more involved sell- Efraim Turban (eturban@csulb.edu) scammers. Since it is in the best interest
ers and buyers. Individual consumers and is a professor of Information Systems of the well-meaning users of these sites
corporations alike can participate in this at California State University, to have a clean and efficient system, the
rapidly growing and very convenient Long Beach. He has worked several companies make it the users' job to main-
form of electronic commerce. years in industry (General Electric) and tain an honest and orderly auction site.
he has provided consulting services to
many corporations and governments. There are several auctioning methods (see
His research interests are in electronic list at www.0nsale.com). For example,
OVERVIEW commerce implementation and the some auctions use a "straight sales"
Traditional auctions have several imita- applications of emerging technologies to method. The price for the good is listed
tions and deficiencies. For example, they Management Support Systems. and the first approved bidder gets the item
generally last only a few minutes for each He is also interested in IT as an enabler at the listed price. In many cases, the Yan-
item sold. This rapid process may give for business process reengineering. kee method is used where sellers usually
buyers little time to make a decision, so Dr. Turban is aflliated with the Interna- offer several identical items simultane-
they decide not to bid, therefore sellers tional Center of Electronic Commerce ously. Bidding is increasing incrementally
may not get the highest possible price, in Korea. Recently, he completed several and the items are sold to the highest bid-
and bidders may not get what they really studies on smart cards. ders. In the Dutch (or reversed) auction,
 Focus THEME

prices decline until a buyer makes a bid it has one. Since November 1, 1996, bro-
(e.g., Klie-Kloc.com for gold and jewel~y kers have been able to electronically place
sale). bids, monitor the bidding action, and re-
ceive notification of a bid's acceptance on
Most auctions are open to the public. Items .IUD Homes Fort Worth Website (http:ll
auctioned are: computers and other elec- www.hud.org/fwhud). The site that also
tronic parts, art work, antiques, rare coins, Borman, M., Karcher, K., Taylor, J. A. offers real estate news and notices and
vacation packages, airline tickets, and and Williams, H. "Electronic information about HUD's real estate owned
many other products. A list of auction Agricultural Auctions in the United (REO) properties. The Fort Worth HUD of-
places is available at www.usaweb.com, Kingdom, " Electronic Markets fice now spends $960,000 less per year in
and in each site there is a list of products Newsletter, Competence Center newspaper advertising and for printing the
sold. The usaweb site provides a search Electronic Markets, No. 9/10, October now discontinued 16-page weekly prop-
engine, Bidfind, where you type in the item 1993, 27-28. erty listing. Duly impressed, HUD plans to
you are looking for and the engine lets equip 17 of its 40 U.S. offices that are on
Clemons, E., Reddi, S. P. and Row, M.
you know in what sites the item is auc- the Web with the same online bidding sys-
"The Impact of Information Technology
tioned. Some auctions are open only to tem by mid- 1997 (see Row 1997).
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on the Organization of Economic

dealers. These include used cars and fore-
Activities: The 'Move to the Middle'
closed real estate sold by the U.S. govern- Some online auctions are run by estab-
Hypothesis," Journal of Management
ment. There are about 100 companies that lished auction houses, such as Frasher's
Information Systems (10:2),
currently doing auctions on the Internet Auctions (zipmall.com/frashers), a Palm
Fall 1993, 9-35.
(a representative list is available a t Harbor, Florida outfit that has been in
www.usaweb.com/auction.html). Clemons, E., and Weber, B. business for 27 years. Others have been
"Evaluating the Prospects for Alterna- set up by retailers or wholesalers trying to
BENEFITSAND LIMITATIONS tive Electronic Securities Market, " reach new customers or to unload excess
Auctions allow individual sellers or com- Proceedings of the 12th International inventory or outdated goods.
panies to sell their goods efficiently and Conference on Information Systems,
with little action or effort required. The New York, 1991, 53-61. Given that Web surfers tend to be compu-
sellers only need to enter the information ter enthusiasts, it is no surprise that sev-
Del Valle, C. "Trekking the Web for
about their merchandise into a form and eral auction sites are auctioning compu-
Travel Deals, " Business Week,
send it to the host. After that, all of the ter equipment. Onsale is an online auction
December 1996, 124.
work is done by the auctioneer. This cre- house that helps companies to auction
ates a greater range of potential buyers. Hess, C.M. and Kemerer, C. F. slightly outdated models to consumers
Extra cash can be earned and excess in- "Computerized Loan Organization looking for deep discounts. Onsale fre-
ventories can be sold quickly through this System: An Industry Case Study of the quently buys the computers from the ven-
process. The main benefits to buyers is that Electronic Markets Hypothesis, " dors at deep discounts and then auctions
they can get a huge variety of goods, es- MIS Quarterly, September 1994, them. Intel, NEC, and Apple are a few of
pecially collectible and antiques which are 251-274. the vendors using Onsale to auction off
not available locally. Also, buyers can find refurbished items and/or products about
Lee, H.G. "Electronic Brokerage and
quality goods for largely discounted prices. to be replaced by newer models. The goods
Electronic Auction: The Impact of IT on
are delivered directly from the company
Market Structures, " Proceedings,
The major limitations of online auctions to the buyer. Onsale auctions offer over
HICSS 29th, Hawaii, 1996.
are the inability to physically see the items $1 million a week of refurbished personal
and the possibility of fraud. Also, a less Lee, H.G., Wrigley, C. and Wagenaar, R. computers and other consumer electron-
competitive atmosphere may prevail on the "Electronic Market Place with Multime- ics items (see Stipp 1996).
Net since the elapse time is much longer. dia Representation: SEA of Flowers,"
in Proceedings on Pan PaciBc The one-line descriptions of the products
REPRESENTATIVE EXAMPLES Conference on Information Systems, are hyperlinked to full pages with reams
The federal office of Housing and Urban Singapore 1995. of data describing each item. Bidders are
Development (HUD) needed a way to ease identified only by their first and last ini-
the distance between its Fort Worth of- tials to ensure privacy. Almost all bid-
fice, which handles real estate auctions, ders are computer professionals, Web
and the 3,000 Texas brokers who are li- masters, and information systems admin-
censed to buy the agency's properties. Now istrators looking for a deal.
 Focus THEME

About 500,000 visitors have come annu- Art dealers and auction houses are ex-
ally to the Onsale site, registered with a ploring the Web as a medium for art auc-
credit card, and bid on computer prod- tions. The big two auction houses,
ucts. About 25 percent of the traffic is Sotheby's and Christie's, have Websites
driven by banner ads which the company and are exploring strategic uses of the
Lindsey, D., Cheney, P., Kasper, G.
has placed at other Web sites. Another 25 Internet. Sotheby's (www.sothebys.com)
and Ives, B. "TELCOT: A n Application
percent comes from being listed on Cool believes that moving its auction process
of Information Technology for
Sites of the Day. The rest are repeat cus- online is a natural fit for their business.
Competitive Advantage in the Cotton
tomers.
Industy, " MIS Quarterly, December
Christie's (www.christies.com) presently
1990, 347-357.
Airlines have begun auctioning off un- employs the Internet mainly as a mar-
sold seats in 1996. According to a study Maldutis, J. and Donofno, S. keting tool, selling subscriptions to
done by Maldutis and Donofrio (1996), "Are Ticket Auctions the Wave Of the catalogs, brochures, a n d a u c t i o n
U.S. airlines could have earned $8.3 bil- Future for Airlines?" Travel Agent databases through its Website. The auc-
lion last year-more than three times the (279:8), April 22, 1996, 8. tion house is looking into taking online
$2.6 billion they actually reported-if they bids.
Mardesich, J. "Onsale Takes Auction
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had used an auction system for the un-

Gavel Electronic, " Computer Reseller
sold seats. Airlines spent a total of $12.6 According to its home page, Numisma-
News, July 8, 1996.
billion, which is 18.6 percent of their to- tists Online (http://nurnismatist.com) is
tal operating expenses on sales and Massimb, M.N. and Phelps, B. D. "the premier service for coin and currency
ticketing. And while there is little airlines "Electronic Trading, Market Structure collectors on the Web." Thousands of col-
can do about labor and fuel expenses, they and Liquidity, " Financial Analysis lectors from over 50 countries regularly
could cut sales and ticketing costs which Journal, Janua y-Februa y 1994, participate in auctions and fixed price
is their second largest expense. 39-50. sales of coin dealers and auction houses.
Coins, currency, and tokens are ranging
Neo, B.S. "The Implementation of
Cathay Pacific, for example, which flies from beginner coins to elite coins for in-
an Electronic Market for Pig Trading in
in Asia and between the U.S.A. and Hong vestors. "Numismatists Online introduced
Singapore, " Journal of Strategic
Kong, conducted several auctions since SmartFind, an intelligent search agent to
Information Systems (1:5),
1995. Cathay's auction in May 1996, for help finding items. The company has im-
December 1992, 278-288.
example, attracted nearly 15,000 bidders plemented an "immediate response" fea-
for 387 first-class, business-class, and Rosato, D. "Other Fare Discounts are u p ture giving it a big advantage over other
economy-class seats for flights between for Bids, " U S A Today, Janua y 13, online auction sites.
Hong Kong, Los Angeles, and New York. 1997, 3B.
Visitors to Cathay's Website (http:I/ Ebay (www.ebay.com/aw) takes daily bids
Row, H. "Texas Tech," Webmaster
www.cathay-usa.com) made bids May 15 on everything from hotel rooms to lug-
Magazine, Februa y 1997, 16.
through July 31. Bidding for economy gage. Ebay collects a 10 percent buyer's
seats started at $300 round trip versus Stipp, D. "Infotech Special Report, " premium on travel packages (see Del Valle
$800 for Cathay's lowest restricted fares. Fortune Magazine, December 9, 1996). Ebay's Auction Web resembles a
Winning bids ranged from $550 to $775 1996, 159. classified section of a newspaper. There
(see Rosato 1977). In June and July 1996 is a wide variety of goods for sale. The
Van Heck, E., et al.
some airlines (e.g., American) conducted company acts solely as a listing agent.
"New Entrants and Role of IT: The Tele
auctions for a limited number of seats and They do not get involved in the actual
Flower Auction in the Netherlands, "
the proceeds were donated to charities. transaction. Sellers must set up an ac-
Proceedings, 30th HICSS, Hawaii,
count with a credit card in advance of
Jan. 1997.
Donna Rose, a small but well-known listing items for sale.
Beverly Hills art dealer, added online auc- Warbelow, A. and Kokuryo, J.
tions to her successful business in August "AUCNET: TVAuction Network Why sell at Ebay's Auction Web? Here
1995. About half her sales now come System," Haward Business School Case are just a few reasons cited by Ebay:
through her Art Brokerage site (www. Study, 9-1 90-001, July 1989. + Over 1,000,000 items were listed since
artbrokerage.com) "Having a gallery on the its inception in October 1995
Net is perfect," she says. "My customers 4 Over 6,000 items are added daily
are able to look at photos of the art in the 4 Tens of thousands of unique visitors
Art Shopping Mall before they buy." daily see the listing
 Focus THEME

+ Unique auction formats create excite- bilities, bidding for contracts was a tedi-
ment for your merchandise and get ous process. The bidders were required to
you the "market" price inquire with the companies or govern-
+ You receive free daily updates on all ment agencies for which their services
items you have listed would be requested. They would then
+ Very low listing fees compared to tra- place a sealed bid for a contract on a job
ditional auctions and the lowest bidder on a job would more
WEBSITES
+ No additional fees if your item receives than likely get the contract. Sometimes
no bids! AUCTIONS other criteria, such as timing, may deter-
mine the winner. Since the bidders had
Auction Web Classijied.
Manheim Auto Auction's "Cyberlot," is no idea on competing bids, they have had
www2.ebay.com/aw/
known for its used car auctions to deal- the tendency to bid too high. So the ac-
ers. Manheim allows the company spon- First Auction (Home Shopping Net- tual cost of the projects for those who
soring the sale of vehicles (e.g., Toyota) work); www.~rstauction.com put them for bid was higher than antici-
to choose a number of vehicles that will pated. Also, the bidding process has taken
Haggle Online.
be shown on the Internet. These vehicles a very long time, especially when the bid-
www.haggle.com/cache/
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are usually the cream of the crop and are ding contractors did not have an access
associated with firm pricing. A dealer is ONSALE - Auctions of computers, to the proper channels of getting the con-
free to browse these vehicles online and peripherals and consumer electronics. tracts' paperwork to move rapidly. Some
reserve the vehicle they want to purchase www.onsale.com contractors lost bids because of the po-
at a fixed price. The potential buyer is tential fraud in the process. The high ad-
SportingAu.
shown numerous facts about the vehicle ministrative expenses of preparing bids
www.sportingauction.com
along with four to six pictures of the ve- and the time required for preparation
hicle. The transaction is concluded offline. u-Auction-it Online Interactive Auc- caused some smaller bidders, especially
tions. www.uacution.com in remote locations, to miss or lose con-
A realtime o n l i n e auction allows tracts because of their limited access to
3 W Auction.
Manheim to significantly increase their the bidding process.
www.vsn.net/auc/
vehicle throughput. Unlike the Cyberlot
method of selling vehicles at fixed bids, AFlA Auction Gallery BIDDING ONLINE
online auctions hold the promise of get- (www.bonk.com/auctions) The ability to bid for products, jobs to be
ting a bargain buy so more cars can be done, and contracts online has revolu-
sold quickly. Auctions generate greater tionized the way companies do business.
interest than viewing a vehicle with a firm BIDDING Many companies and government agen-
price. Bidding dealers could be located cies are reengineering their bidding proc-
Commonwealth of Kentucky -
locally, across the country, or around the esses and procedures. They feel that the
Division of Purchases.
world. Auctions held online could be tai- use of the Internet to post contract op-
www.ky.gov/kybids.htm
lored for target markets, which would portunities provides a chance for many
contribute to increased excitement among The Worldsource USA. vendors that were not participating be-
potential buyers much as it is the case ww.worldsource-usa.com fore.
with antique cars whose auctioning on
the Internet is growing rapidly. In the case of online bidding, contractors
can access lists of available jobs on the
Web pages of companies or agencies and
scroll through the list until they find a
job appropriate for them. These jobs are
BACKGROUND highlighted with links to complete de-
Competitive bidding is a special case of scriptions of the jobs and their require-
auctions, where buyers are usually lim- ments. After selecting the appropriate job
ited to one bid per auction rather than from the list, the contractors can enter
unlimited rebids as in regular auctions. their bid for the job. The list of outstand-
Before the introduction of online capa- ing bids are available on corporate and
 Focus THEME

government sites so that vendors can see nities though it does not yet (September
the most recent updates on the status of 1997) have the capability of electronic
any particular job. Once the bidding time form registration, it does use e-mail for
has ended, a decision is made by the com- vendors to register their bids with the
pany or agency as to whom the contract agency. The site also has the Vendor In-
is awarded. This process is much like auc- formation Program, where vendors that
tioning online except that the bids are WHAT ITEMS ARE AUCTIONS MOST are already registered with this program
sealed. FREQUENTLY can download monthly updates for con-
tracts. The updates include long and short
any collectible item
BENEFITS AND LIMITATIONS OF descriptions of "Invitations to Bid" and
ONLINE BIDDING antiques, glassware, coins, oriental rugs "Requests for Quotes."
A common benefit for both the awarding
jewelle y, unclaimed property
companies and vendors is that they save For many companies and agencies, such
much time and money in the administra- gold, silver, health products, ayarreda as the Commonwealth of Kentucky, online
tive side of the bidding process. The main bidding has saved much time and money.
antique photos, rare books, furniture
benefit to the companies posting contracts Therefore, many agencies are phasing out
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is that they are able to solicit for services art, graphics, posters, fine art their traditional bid mailing processes.
in a wider pool. This allows them to pick These agencies are trying to gain access
celebrity autographed collections
the ones that give them the lowest prices to the vendor community and get their
and provide the best value of service. stamps, sports cards feedback on these new processes.
Boeing Inc., for example, announced in
antiques maps, documents, stock
1997 that they found on the Internet some GENERAL ELECTRIC'S TRADING
certificates, old money, letters
vendors that charge 10-30010 less than NETWORK.
what Boeing used to pay, and they also old toys, wines General Electric set up a trading process
get the job done faster. Contract award- network (www.tpn.geis.com) in 1994 al-
computer hardware, test equipment,
ing companies or government agencies lowing its vendors to make bids on GE
accessories peripherals
also require less employees and assets to electronic component contracts easily and
(new and refurbished)
carry out their outsourcing processes. The quickly. The TPN service has expanded
benefits to bidders is that they have a old records (LPs) considerably since then. Today, the GE
much greater opportunity of participat- Web site focuses on industrial commodi-
liquidation of any surplus merchandise
ing in bids. They are no longer overshad- ties such as metalwork, plastic parts,
owed by larger companies; they have as powers, sporting equipment chemicals, packaging, computer parts,
much chance of getting a contract as any and electronics. In 1996, for example, GE
pigs, horses and livestock, special coffee
other company. put close to $800 million worth of busi-
The major limitation of closed bids is the airline tickets, travel packages, ness up for bid to approximately 1,000
inability to rebid. You submit an offer hotel rooms participating suppliers. GE benefits from
once and you do not know what the other this process with reduced purchasing costs
petroleum equipment
bidders do. (10 to 15 percent) and reduced purchas-
real estate: government (HUD), private, ing cycle (from 14 to 7 days).
time sharing
The procurement Web site links, via GE's
aircraft
intranet, to GE's Lighting Manufacturing
THE COMMONWEALTH OF KENTUCKY'S boats Resource Software, allows purchasing
FINANCE AND ADMINISTRATION CABINET agents to post up-to-date product blue-
DIVISION OF PURCHASES. prints directly from the factory floor. This
This system allows any qualified vendor creates an extended supply chain auto-
with computer access, the ability to com- mation from the supplier to the factory
pete for contracts with the Common- to the buyer. Prior to TPN, suppliers used
wealth of Kentucky. The "Bidding Oppor- ED1 with proprietary software-an inflex-
tunities Web Site" allow vendors to view ible and expensive process.
and download current bidding opportu-