platform lectures ebay

8/8/2019 Platform Lectures Ebay

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Auction-Based Platforms

Susan Athey

Market Design

Notes developed in collaboration with Greg Lewis (Harvard)and Jon Levin (Stanford)


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Auction Platforms


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Introduction

What is a platform? By analogy to computing, where a platform is a hardware

architecture or set of standards that that allow softwareapplications to run.

Platform markets bring together different sides of themarket to interact.

Many examples: visa payment network, video gamesystems, online dating sites, iPhone app store, etc.

Today, focus on auction platforms: markets such aseBay, Amazon, financial exchanges, with A structured environment for buying and selling goods

Often a very specific set of market rules & institutions.


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Introduction

Idea 1: Bigger than the auction itself Auction design: specify the bidding rules, who gets the

object(s), and payments to be made.

Search/Information: platform markets help buyers andsellers find one another, and allow them to exchangeinformation (e.g. presentation of informaiton oneBay/Amazon).

Standards: quality scores, reputations scores, grading ofused goods, targeting in online ads.

Contract design and enforcement: rules for pricing andexchange and various mechanisms for verifying andenforcing that these rules are followed.


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Introduction

Idea 2: Platform creates an ongoing market Economists often analyze auctions one at a time

Platform markets generally involve ongoingexchange, many sales every day, market evolvesover time.

Platform is setting the rules of the environment,e.g. on eBay the type of ways that sellers can

offer stuff to buyers or set prices. Doesnt always have to be auctions, e.g.

Craigslist and eBay have quite different pricing


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Market design

Platform operators have to consider

How to attract buyers and sellers

How to match them efficiently

How to ensure market runs in an orderly fashion

How are the gains from trade shared

How does the platform make money

Tools for answering these questions

Theoretical models (as in search auction case)

Experiments (very common in online markets)

Data analysis (platforms get to collect a lotof data)


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Monopoly platforms

Indirect network effects: more buyers attracts moresellers and vice-versa.

Platform may have to decide which side to charge -

Does it matter? Why might it matter? Common to charge one side of the market but not

the other (e.g. yellow pages, sponsored search,dance clubs, visa?)

Platform may have to trade off market efficiency(creating a bigger pie) and profit (taking a biggerslice)


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Competing platforms

Nature of competition and effects of competitiondepend on single vs multi-homing.

If one side single-homes, platform can charge the other

side for unique access Can create a lot of competition to attract single-homers,

e.g. payments, exclusive contracts.

Scale economies may be very important

Scale can allow platform to improve its technology (fixedcosts amortized over more transactions).

Scale effects can also be subtle - sellers like more buyers,but not necessarily more competing sellers!


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eBays Market Design


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eBay and online markets

eBay: largest site for e-commerce

81,000,000 monthly visitors

140,000,000 listings on a given day $8,500,000,000 platform revenue

Competes against Amazon, Craigslist, otheronline sites, plus many off-line companies.

Today: discuss its marketplace design.


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Market + Search Technology

Many heterogeneous objects being sold

Different kinds of sellers and buyers Range from full-time pros to casual participants.

Ongoing market, sequential sales/closes

Multiple pricing mechanisms Auctions, Posted prices (Buy it Now)

Buyer search Catalogs/Browsing, Sophisticated search

Featured listings, advertising


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Structure of Buyer Search

What distinguishes listings What is the good, new/used

Who is the seller, reputation, location

What is the sale type: auction, posted price.

Some important issues Prioritize auctions or posted prices

Catalogue vs non-catalog items Distinguish sellers, or initially just goods

Conflation? Or emphasize diversity?


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Conflation in market design

Emphasize diversity Traditional eBay search brought up page of

listings, organized by auction ending time.

Similar items might look very different sellershave an incentive to emphasize diversity!

Conflation (a la Amazon, eBay more recently) Search for product, product is displayed

Sellers, and seller distinctions revealed later.

What are the trade-offs? Do they depend onthe nature of the item and perhaps buyer?


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Listings and Information

eBay in principle controls what sellers cancommunicate to buyers

Different types of information in listing Standardized information

Free-form information (photos, videos, text)

Some important issues

eBay imposes relatively little structure on sellers

Only recently has started to collect extrainformation from sellers why would you do this?


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Disclosure and Adverse

Selection

Especially for big-ticket items, buyers may beworried about the quality of the item.

There is potential for adverse selection problems. Seller disclosure might mitigate these issues.

Greg Lewis (2009) study of eBay motors.

Provides empirical evidence by correlating sale

prices with amount of information disclosed bysellers.


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The Lemons Problem

Three kinds of car: peach, apple, lemon Buyer values: $2500, $1800, $1100 Seller values: $2000, $1500, $900 Seller knows quality, buyer doesnt Equal numbers of car types

Akerlof lemons problem At market price > $2000, all sellers will sell, but buyer

expected value is only $1800 No trade. At market price btwn $1500 and $2000, apples and lemons

will be available, but then buyer expected value only $1450 At market price btwn $900 and $1500, only lemons will be

available, so buyer value is $1100. Market eqm: Lemons trade at btwn $900 and $1100.


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Disclosure

If quality can be costlessly disclosed Peach sellers will disclose quality

So apple sellers will also disclose

So buyers will be able to identify lemons!

Then all types of cars will trade

This unraveling result is quite striking

Depends on buyers being sophisticated Or alternatively, on seller competition

What happens if disclosure is costly?


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Costly disclosure

Back to our example

Buyer values: $2500, $1800, $1100

Seller values: $2000, $1500, $900

Suppose disclosure costs $400. Peaches will disclose, sell for $2000-$2100.

Apples will not disclose too expensive!

Lemons will trade w/ no disclosure $900-$1100.

Costly disclosure can lead to intermediate trade.Doesnt have to be the best items that trade, but theitems where there are large gains from trade!


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Contract/Transaction Design

eBay can place structure on the transactionitself, or facilitate transaction in various ways.

What is the contract? Seller agrees to provide object as represented.

Some free form terms and conditions

Buyer pays first, usually no escrow!

Trust-based (compare with China eBay)

Main issue: safety for buyers


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Reputation mechanisms

Seller reputation helps enforce contract Buyers give feedback post transaction

Sellers also give feedback post transaction

Participants acquire scores pos. & neg reviews

What are the issues What is the incentive to give feedback

Retaliation problems Bolton et al. innovative designs

New programs for top sellers good idea?


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Bolton et al. on Reputation

How can you avoid the retaliation problem? Dont let seller give feedback

Dont let buyer/seller see each others feedback

Mix of disclosed/non-disclosed feedback

What are the trade-offs?

Other reputation issues W

hy are the sellers trusted?W

hy not buyers? Are there other ways to organize the market?

Markets turn out to be quite local trust issues?


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Auction mechanism

Ascending auction with proxy bidding

Enter maximum bid proxy bids up to maximum

Object awarded to standing high bidder at close Hard close: auction ends at a fixed time

Secret reserve minimum bid usual reserve, butpossible an extra secret reserve.

What are the issues? Sniping (late bids: why does this happen?)

Squatting (early bids: why does this happen?)


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Sniping (Roth et al.)

Roth and Ockenfels (2002)

Sniping observed at hard close auctions

Sniping doesnt occur when there is a soft close

Why would you wait to the last minute Early bids might attract attention to a listing

Early bids might signal object was valuable

Even if these benefits are small, the costs of delaying to

the last minute are also small or zero. Squatting is what you expect if the effects go the

other way early bids scare off other bidders.


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Auctions vs Posted Prices

eBay has moved toward to posted prices

Now more than half of the platform is prices

What are the trade-offs? Auctions: good for price discovery, maybe fun for

buyers, perhaps good for unusual or uniqueitems, forces buyers to compete.

Prices: good for immediacy, speeds up the marketpotentially, forces sellers to compete.

Why would the market have shifted?


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Market design, broadly

What are all these smaller decisions aimed at

Attracting participants

Efficient matching of buyers and sellers Orderly and safe transactions

How could we assess the efficiency of themarket? What measures to look at?

Number of participants and level of engagement,how easily/quickly buyers and sellers can trade,level of prices, amount of fraud, market structure.

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