http://www.ebay.com/ 

          The phenomenon of eBay is, for all intents and purposes, the pinnacle of the auction idea in our modern society.  In its original form, it was a first-price open-bid auction format and revolutionized the way e-business was conducted virtually overnight.  As the site has grown and re-invented itself, a number of important aspects of its concept make for convenient examination in relation to what we discuss in class.  In this case, of particular interest is the “Buy It Now!” feature that is being used in more and more auctions on eBay.  This feature allows bidders to forgo the bidding process and buy the item outright for a preset price that (usually) exceeds the value where the auction will eventually end.  Some large sellers are even posting multiple instances of one item, with a “Buy It Now!” cost as the only price and no auction at all.

            This function bears a striking resemblance to the idea we discussed of second-price, sealed-bid auctions.  The dominant strategy in this type of auction is to bid whatever your personal value for an item may be, and see what happens.  This has an advantage over the first-price, open bid auctions because you do not run the risk of entering into a bidding war with an individual, driving the price higher than it might otherwise have risen.  So, when on eBay, if you were to encounter an item that had a “Buy It Now!” price that was lower than, or equal to, your value, you should not hesitate to use the function.  This is similar to the second-price sealed-bid auctions because it assumes that one will stop bidding once one’s individual value is reached and because it removes the need for multiple bids over a period of time as long as the parameters of personal value are met.

            It is interesting to note is that in most auctions, the “Buy It Now!” function is often passed over in favor of bidding in order to obtain the item for an even lower price, even if the preset price was lower than personal values.  This indicates the human tendency for loss-aversion, as many people who would be perfectly happy with the item for the “Buy It Now!” price are afraid that they could be getting an even better deal through bidding, which is a contrary idea to that of the second-price sealed-bid auction.  So while this aspect of eBay is an application of the auction theory we discussed in lecture, it would appear to be an imperfect one.  This can perhaps be remedied over time by greater seller awareness of the economic theory behind everything and greater attention to where they should place the “Buy It Now!” price and the starting bid price, in order to maximize their own profits and buyer satisfaction.