BusinessWeek has this fascinating story about the decline of the auction business. Specifically, that auctions on eBay for ordinary, or relatively ordinary, items may be a thing of the past.
The one paragraph to read:
What happened to auctions? Not only do shoppers want convenience, they’re also looking for value. And the proliferation of pricing information online has made it easier for consumers to bargain-hunt and lessened the need to risk overbidding in an auction. Hershenson recalls when a new $40 toaster could fetch $80 on eBay, thanks to a bidding frenzy. Now, a buyer can figure out the retail price with a few mouse clicks. A study earlier this year by the Pew Internet and American Life Project found that 81% of Internet users research products online before buying. “People have a lot of information at their disposal and that sets a reserve price of what they are willing to pay,” says John Horrigan, an associate director at Pew. “It makes sense for eBay to set prices to appeal to that.”
What’s interesting here is that auctions are meant to be a price discovery process, but on eBay perhaps they were more than that: a sucker discovery process. But now that people know they can go multiple places online to find out what something costs, they’re suckers no more.
~alex
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It’s not so suprising when you think about it. Perhaps the oldest and most popular (with ‘end’ corporate users) type of ‘modern’ derivative contracts are caps and floors. Certainty is something worth paying for when you are running a business (or a household!) and it makes sense to let the clever chaps that write these options take the ‘tail’ or ‘black swan’ downside risks. The cost of this ‘certainty’ insurance is usually / often mitigated by the customer giving away the upside ‘tail’ risk as well (collars.)
Perhaps what eBay should be doing is facilitating this kind of hybrid opportunity.