The internet auction has given a great boom to the B2B markets. The emergence of the World Wide Web has profoundly changed the way people do business. Electronic market mechanisms gain more influence and coverage where there have been traditional markets and they emerge even in areas that have not seen markets before. Among the different market mechanisms, Internet Auctions is one of those which have gained the most attention. Maybe this is due to the fact that most people are amazed by the dynamics of real time price determination or perhaps by the glamour of auctions in fine art or even by the opportunity to gain a bargain. Perhaps it had to take a medium like the web that continually attracts new auctioneers and vendors, to actually make the renascence of the ancient auction process.
From a market microstructure perspective, auctions are basically trading processes, which bring buyers and sellers together. Auctions may be used when other trading procedures fail to work or when a price discovery process is needed. Auctions as a mechanism to determine a price identifies auction as a procedure to establish an equilibrium market price. This may be done for products that are not traded on the traditional markets, like rare antique items, or for products with highly fluctuating prices, like stocks, currencies, commodities, etc. The common identifier for these auctions is that buyers and sellers are brought together to provide purchase and sale orders and hence liquidity.
An auction as a distribution allocation mechanism identifies auctions for consumer products which are difficult to sell through the ordinary market channels because they are: Products with limited life, such as airplane seats (which are worthless after the plane has taken off); and/or Overstocked products, which need to be separated from new incoming products. In this case the auction is a new separate distribution channel, which is created to attract a large audience. In return the sold products will often have a large discount.
The auctioneer's main goal is to attract so many customers that the market will be liquid without forcing the auctioneer to do major price reductions. These kinds of auctions will often attract bargain hunters who are well-informed customers who know what specific products that they are looking for. The electronic auction process is illustrated in the figure below. The auctioneer brings together suppliers (sellers) with customers (buyers or bidders) within the auction process. Furthermore, trade objects and a rule base are needed during the transaction phase.
The entire auction process can be executed with information technology on the World Wide Web. The impact of the web on the electronic auction process may be significant. From a seller-buyer perspective there are three different pairs of buyers and sellers that appear in electronic auctions. These different pairs are: Consumer - Consumer (C2C); Business - Consumer (B2C); and Business - Business (B2B). Business - Business auctions is mainly used by companies and governments to sell public contracts and surplus property. B2B auctions are in some extent privately held since only business companies can qualify as potential buyers. Therefore, B2B auction sites tend to be not as promoted to the general public as C2C and B2C auction sites are.
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