Auctions May Point to Future of Internet Pricing

Online auctions have opened a new form of dynamic shopping. This trend marks the start of a fundamental shift toward dynamic pricing, giving consumers more flexibility than ever before.

Prior to online auctions, one of the few places that dynamic pricing could be seen in action was in the buying and selling of commodities. In the future, dynamic pricing will continue to affect how everything is bought and sold, at auction and beyond.

At online auctions, the inventory and price of goods are always changing. The Internet's openness makes it possible for the buyer to search without geographic boundaries. Opportunities for the seller are now limitless. The increasing online audience can browse a massive inventory of goods.

The online auction market is growing. Forrester Research estimates that the value of goods and services sold through online auctions will rise from $10.1 billion in 1998 to $64.9 billion in 2002. Dynamic pricing is working.

As the public becomes more comfortable with Internet shopping, the availability of items and the variety of online auction sites will grow. Hundreds of consumer-oriented online auctions sell new and used items. These auctions do not include the business-to-business segment, which has enormous potential.

Advantages for sellers include the ability to sell unique items whose cost has not been established, to move inventory at a flexible price and to maximize revenue by selling at the highest price the market will support. Auctions can backfire, however, and the seller may have to settle for a price lower than the asking price.

Buyers like online auctions because they can dictate the price they are willing to pay and can purchase items below retail. Disadvantages include the focus on price instead of product information and the potential for fraud.

Currently, the online auction market can be broken down into three main segments, each using dynamic pricing as set by supply and demand:

Person-to-person auctions provide an open market for anybody to sell anything to anyone. It is the most recognized form of online auction, a virtual flea market online. One-of-a-kind, usually used items are sold in auctions that often last several days. EBay is the leader in this segment.

Business-to-consumer online auctions are becoming more widespread, and the range of products is expanding. New products, in a box and sometimes under warranty, are sold through this channel. Merchants often put up for auction several quantities of one item. As soon as the auction concludes, it starts up again with a replenished inventory of the original item.

Business-to-business online auctions are in their infancy at this time. This segment is the hottest topic for the future of online auctions and boasts enormous potential for retailers. Yet size may also be the Achilles heel. Segmentation may remain an issue.

One way to help buyers find what they need is the auction portal. Several portals have emerged to help tackle the size and scope of online auctions. Portals work in the same way that Yahoo finds information on the Web, yet they focus on only auction sites and items for sale. The auction portals compile information for buyers searching for specific items.

So far, the online auction has proven itself as a working model for the Internet. By no means, has the development process ended. With the continued growth and openness of information on the Internet, dynamic pricing will continue to satisfy both the buyer and the seller. Ironically, one could argue that through this process, the market will arrive at a point where the supply and demand curves always cross.

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