Link to the video: https://www.youtube.com/watch?v=qC8bWoCZDm0
Our video on the Technology of the Week revolves around Electronic Markets and Auctions. More specifically, we focused on the industry of selling second hand cars, which is mostly done using auctions. It is valued at more than $100 billion in 2016 (Overby, 2017). The industry has been disrupted over the past decades due to the rise of digital technologies and consequently the new business models that have been adopted by online auction platforms.
In the offline world of car auctions, the most widely used form of auctioning is the hammer auction, which is similar to the English Auction (Lu et al., 2016). A second way of auctioning cars is the tender or silent auction, similar to the Sealed Bid Auction (Lu et al., 2016). These offline forms of auctioning are commonly used in online auctions too. However, with the rise of online auctioning; new formats have been developed as well. A new common practice has been adopted by AutoAuctionMall (2017), which allows buyers to bid on a certain car that is up for auction, but also allows buyers to instantly buy the car for a fixed price. Bids can be placed at any time during the auction and from anywhere with access to the internet. For seller, this means they are able to set the reserve price for their product as well as a target price.
To analyze the industry disruption, we used the Five Forces Framework (Porter, 1979). This allowed us to examine how the fundamental elements of the industry have been affected. First, competitive rivalry has increased, as the internet vanished geographical borders and it became easier for bidders to choose between auction events. Second, the bargaining power of buyers also increased, because the switching costs dropped dramatically. The third force concerns the bargaining power of suppliers. Whereas suppliers are not limited to their local auctioneer, the auctioneer is not limited to local suppliers either. Auctioneers can easily switch between suppliers as differentiation is relatively low, so ultimately the power of suppliers decreased. Fourth, the threat of substitutes increased, as the internet made it possible for suppliers to bypass auctioneers and be directly linked to potential buyers. Finally, the rise of digital technologies decreased the barriers of entry to the industry, thereby increasing the threat of new entry.
The rise of the internet stimulated consumer uncertainty, which is an information asymmetry problem. It can be represented by the market for lemons and leads to adverse selection, which over time causes the market to collapse (Dimoka et al., 2012). Whereas inspections and warranties are currently given out to counteract this phenomenon, we envision the use of augmented reality (AR) to be the solution to this problem in the future (Raab & Roytman, 2017). AR allows buyers to virtually walk around the car and take a look inside, thereby getting a sense of the “look and feel” of the car. Because of this, sellers and buyers have access to virtually the same information, thereby taking away the asymmetry.
References (Applies to both the blog text as well as the video) :
AutoAuctionMall. (2017). Auctions. Retrieved October 3, 2017, from https://www.autoauctionmall.com/auctions/.
Autoveiling. (2017). Hammer auction. Retrieved October 3, 2017, from https://www.autoveiling.nl/veilingen/hamerveiling.html
CarAuction. (2017). Auctions. Retrieved October 3, 2017, from http://www.thecarauction.be/index. php?id=434.
Dimoka, A., Hong, Y., & Pavlou, P.A. 2012. On Product Uncertainty in Online Markets: Theory and Evidence. MIS Quarterly 36(2) 395-426.
Encyclopedia. (2002). Electronic Markets. Retrieved October 3, 2017, from http://www.encyclopedia. com/computing/news-wires-white-papers-and-books/electronic-markets.
Forbes. (2014). eBay Through The Lens Of Porter’s Five Forces. Retrieved October 4, 2017, from https://www.forbes.com/sites/greatspeculations/2014/11/24/ebay-through-the-lens-of-porters-five-forces/#215346edd146.
Lu, Y., Gupta, A., Ketter, W. & van Heck, E. (2016). Exploring Bidder Heterogeneity in Multi-channel Sequential B2B Auctions: Evidence from the Dutch Flower Auctions. MIS Quarterly, 40 (3), pp.645-662.
Overby, J. (2017). Auto auctions: $100 billion industry in 2016. Retrieved October 3, 2017, from http://www.autoremarketing.com/wholesale/auto-auctions-100-billion-industry-2016.
Phillips, J., Somok, B., & Zheng, X. (2005). How to dominate the online auction market. Retrieved October, 4, 2017, from http://www.mcafee.cc/Classes/BEM106/Papers/2005/eBay.pdf.
Porter, M.E. (1979). How Competitive Forces Shape Strategy. Harvard Business Review.
Raab, C. & Roytman, A. (2017). Augmented Reality Drives An Immersive Car-Buying Experience. Retrieved October 7, 2017, from http://www.cmo.com/opinion/articles/2017/5/1/driving-an- augmented-car-buying-experience-tlp-ptr.html#gs.UhK_700.
Rouse, M. (2016). What is Augmented Reality (AR)? Retrieved October 7, 2017, from http://whatis.techtarget.com/definition/augmented-reality-AR.
Authors:
Corné van den Essenburg – 384315
Evelin Gyenes – 486999
Iman Hitli – 413763
Thomas Keuter – 413997
