Online Auctions Expand the Universe for Buyers and Sellers

Jesus Bustamante wanted to buy an old music box for his wife for her birthday. As a busy Internet professional who specializes in designing Web sites, he thought the online auction marketplace would be a great way to find one. He understood the rules, knew the technology and had easy access to the Web.

Bustamante logged on to EBay, the well-known Internet exchange, and began searching for the perfect item. He bid on several music boxes, but his offer was accepted on just one. “It looked good in the picture,” he said, and he decided to send the check.

“I received it several days later,” he said. “It sounded [bad]. I was a little disappointed with the thing. My expectations were probably unrealistic.”

The seller offered to refund his money, but Bustamante concluded it had been a fair transaction. He kept the box. Since then, he and his wife chuckle about the experience but have not bought another item from EBay. He once came close to buying a used guitar online, but, recalling the music box experience, went to a store instead.

Despite unpleasant experiences such as Bustamante’s, the online auction marketplace is huge and getting bigger as more Americans log on to the Internet.

Forrester Research estimates that online auction sales will hit $19 billion by 2003. Jupiter Communications predicts it will top $26 billion in 2004. Last year, the market for consumer-to-consumer online auctions was about $3 billion, with EBay, already commanding a market share of about 90%, growing at a rate of 10% a month.

The question of who benefits in the online auction environment is debatable. Bustamante certainly felt short-changed.

Experts say that in some cases, such as when in-person inspection of an item is essential or authenticity cannot be verified, Internet auctions should be avoided. This is also true if an item is needed immediately, must be tried on, or if shipping will be a problem. Cars are often sold via the Internet, but may not be able to be test-driven. If fraud is even remotely suspected, clearly a buyer would want to stay away.

Is an astronomical price a reason to avoid an Internet auction? No, said David Redden, vice chairman of Sotheby’s North America. “As the value climbs higher and higher, perhaps there are other necessities that creep into the picture, such as a live exhibition,” Redden said.

A first printing of the Declaration of Independence, for example, sold on Sothebys.com for $8.14 million, but first it was on display across the country. Along with guarantees, accurate descriptions are essential, Redden said. “In the past, that would have gone without saying.”

For most collectibles and limited edition items, experts agree the Internet’s convenience is unsurpassed, noting that money-back guarantees are usually available on well-known sites.

If a consumer is willing to take a slight risk, the list of products is endless, from cars and computers to high-tech lab equipment and memorabilia galore. Unopened goods direct from merchants are also for sale.

“The online world works so well; I find it so efficient,” Redden said.

Keith Murnighan, a risk management professor at Northwestern University’s J.L. Kellogg Graduate School of Management, also had high praise for the medium.

“I think it’s a fantastic thing,” Murnighan said. “It’s an opportunity for people to reach exchanges that are mutually beneficial.”

Murnighan has done research on the phenomenon of online “auction fever.” This is when buyers pay more than intended because they were swept up emotionally in the overall auction process. He studied the Chicago cow case in detail, when the fiberglass bovines featured in the 1999 exhibition were put up for sale.

“Most of the results suggest that the folklore behind auction fever is correct,” he said. In this case, sellers certainly raked in the money. The cows were perfect items for the online auction process, Murnighan said, because they were unique, popular and sought after. The average Internet price was $18,000, handily topping pre-auction estimates of $2,000 to $4,000 apiece. Murnighan, who wanted a cow, didn’t get one.

For the cows and for a seller operating a small shop on a country road with few visitors, the Internet is a great vehicle, Murnighan added. “This is the big thing for sellers--your market has increased. You’re going to get a lot of hits.”

Experts attribute the growth in online auctions to this very ability to broaden the audience for many types of items.

David Lucking-Reiley, a visiting professor at Kellogg, has published research on online auctions. He agreed that in certain respects sellers benefit, but said overall, the auctions are a boon to everyone.

“I can’t think of any items that obviously shouldn’t be auctioned,” Lucking-Reiley said. “But auctions are less valuable for goods where it’s obvious what the market price should be. Auctions are more valuable when the demand is uncertain or fluctuating. The way that I would think about it is that it is certainly true that if I wanted to sell something from my attic, and I didn’t have the option of EBay, it’s quite likely that I would not get as good a price. Certainly, competitive bidding benefits the seller.”

However, he also said the buyer gains by even having access to the item in the first place. Another advantage is that the venue allows the marketplace to determine the value for an object, which otherwise might be difficult to place, Lucking-Reiley said.

Larry Canale, editorial director for the online publication The Inside Edge at Bidder’s Edge Inc. (https://www.biddersedge.com), said the answer to the question of who benefits more depends on the item. He cited a recent example of a Tiger Woods rookie card going for $20,000, “which is obscene,” Canale said. Obviously, the buyer paid a huge premium.

But for a buyer with more patience and unwilling to spend that kind of money, sites such as Bidder’s Edge send e-mails stating when a similar item might come up for auction at a less-fevered pitch, he said.

Almost anything can be auctioned online with good results, Canale said. “There aren’t many things that I would say, ‘Don’t get.’ ”

The Bidder’s Edge site, launched in November 1998, allows people to search more than 200 Web sites, including EBay, Yahoo, Amazon and UBid. “It’s designed to give the buyer as much selection as possible,” Canale said.

With more than 5,000 auction sites estimated to be on the Web, such a search engine can be very useful.

John Jackley, founder of USAWeb.com and a co-founder of LiveBid.com, which was sold to Amazon.com last year, predicts the success and popularity of online auctions will grow as traditional auction houses like Sotheby’s get more involved, linking relationships with local markets to the national or international online arena.

“We believe there are many synergies between the two markets,” Jackley said. “Specifically, we see huge potential for the online auction sellers to utilize traditional auctions in their area to obtain inventory to sell through an online auction of their choice. I have talked to many people doing this, and making a good living doing it.”