THE SCIE C E 0 F AU C T I 0 N S, �                                      Co-otition This page intentionally left blank.                       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                                                                                                                  The Essence of the Digital Deal X n                                                                                                                                                                                           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    [...]... the Deal to Other Traders Identify Potential Tradlns Partners Most businesses buy their inputs &om thousands of vendors and sell to thousands of customers They face the huge task of sifting through dozens of vendors for each of their inputs and of com­ peting with dozens of rivals for the business of their customers Traditional methods for getting in touch with suppliers and cus­ tomers cut a lot of. .. price posted by the seller The choice among these models is not random, but rather depends on the nature of the product and the roles of the players The six pri­ mary e-market models are the following: 1 'The elay model The product is one of a kind, and there are sev­ eral interested buyers The seller wants to get one buyer to pay something close to her highest price The seller arranges for the buyers to... might become the victim of the zero-profit princi­ ple, as copycats invaded the market and drove prices down But business methods patents in e-markets are controversial-there is almost a consensus that they are harmful because they stand in the way of innovation by others It is too early to judge the issue, because the actual effect of the patents remains incompletely tested Microsoft and Priceline... had put the three buyers in separate rooms and dickered sepa­ rately Each time he got an offer from one, he would take it to the others to beat The highest offer he could possibly get to take to Juanita would be Yoriko's cutoff of $ 1 1 ,000 So Juanita could offer something over $ 1 1 ,000 and get her Camaro Both the identity of the buyer and the price (roughly) are the same with the auction or the dickering... splendidly The OffRoad Model: Stocks and Bonds Many e-markets use auctions for multiple identical objects OffRoad Capital auctions shares in developing companies before they go public Other e-markets auction the stocks of companies going public or auction bonds The deal engines in the stock market and the bond market always auction many units, gener­ ally to many bidders An interesting question is whether the. .. eBay's, its profit will erode as others enter the market In a line of business where there are too many players for any to profit, some will leave the business, and the profit of the survivors will rise to make them viable e-Markets will sort customers by convenience and value of rime as well Travelers willing to search the Internet for bargains and to take flights with inconvenient rimes and connections... earned any profit Then values tumbled in the spring and fall of 2000 The actual development of business transactions on the 17 18 Deal Engines Internet progressed smoothly during that period and after the crash There is little doubt about the importance of the Internet for 8-to-8; the ups and downs of market capitalizations of 8-to8 players reveal changing beliefs about how Captive B-ro-B e-markets are... initial offer is lower than the buyer's best price The engine finds an acceptable price somewhere in between, and a quantity of the product as well Many Internet deal engines run electronic auctions Others allow customers to select from offerings from a variety of sellers The Essence of the Digital Deal And the simplest of all is the e-market where a customer chooses whether or not to pay the price... as Ariba and Com­ merceOne prospered because they found good markets for their products among the captive e-markets The largest player, FreeMarkets, grew rapidly by providing consulting and software services to large companies establishing their own procurement e-markets The Variety of e-Markets The job of an e-market is to make deals by overcoming buyers' and sellers' reluctance to reveal their best... Nothing is ever disclosed about the terms of the actual deal eBay's transparency is quite different You can learn the eBay name and email address of the seller and all the bidders at any time You can check the feedback about any of them The only information about bids during an auction is the current auction price Because the current price may be below the maximum price of the leading bidder, you don't .          The Essence of the Digital Deal X n     . THE SCIE C E 0 F AU C T I 0 N S, �      