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MANAGING THE DIGITAL ENTERPRISEMICHAEL RAPPA

<8>AUCTIONS AND DYNAMIC PRICING

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Hungry minds:

Dynamic Pricing
Strategies for
Multi-Product Revenue
Management

Constantinos Maglaras
Joern Meissner

eBay's Happy Hour:
Non-Rational Herding
in Online Auctions

Uri Simonsohn
Dan Ariely

Bid Together, Buy
Together

Robert J. Kauffman
Bin Wang

Cyberspace Auctions
and Pricing Issues

Patrick Bajari
Ali Hortacsu

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Case study:

eBay

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Places to visit:

Auctionbytes

Internet Auction List

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Previous topic:

Intelligent Agentsspace

Digital Automata

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Auctions and Dynamic Pricing
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No where perhaps is the impact of the web more evident than in the case of auctions. By now everyone has heard of eBay, the pioneer in person-to-person online trading. Founded in 1995 by Pierre Omidyar, the company now provides millions of auctions, and hundreds of thousands of new items every day from which bidders may choose.

In the future, auctions will have a profound effect on many aspects of business on the web, from product pricing to supplier contracting to inventory liquidation. Auctions use the market mechanism to solve a difficult business problem: pricing. Setting prices can be tricky, as product managers well know, especially when it comes to new product releases. Price the product too high and inventories mount; under price what the market is willing to pay and shortages occur and money is left on the table. Finding the right balance can take time, and indeed, one can continue to miss the mark as the market shifts and competition evolves. With an auction, there is no guess work: the market sets the price (above some minimum). Auction-based pricing is sometimes referred to as "dynamic" or "fluid" pricing, in contrast to set or static pricing mechanisms.

To appreciate the full potential of the auction, one must recognize the many possible permutations this model can assume -- especially on the web. The commonly used auctions are the open-cry (or English) auction, the sealed bid auction, and the Dutch auction. However, there are a number of dimensions that can be varied in an auction to yield subtle but important differences in the process and outcome.

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Hear the podcast:

Podcast by Professor Michael Rappa

Audio | Transcript

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Things to read:

Learning Objectives

__/ 07-27-2005 \__
What Consumers -- and
Retailers -- Should Know
about Dynamic Pricing

__/ 05-17-2005 \__
Pennies from eBay:
Determinants of Price
in
Online Auctions
David Reiley, et al.

__/ 08-05-2003 \__
Auctions and Pricing
in E-Marketplaces

Wedad Elmaghraby

__/ 11-11-2003 \__
Shattering the Myth of
Costless Price Changes:
Emerging Perspectives
on Dynamic Pricing

Mark Bergen, et al.

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Channel Conflict

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