Online auctions are dying because they just aren't fun anymore.
The price competition offered by matching sellers with legions of online buyers was once predicted to be the permanent model of how commerce took place on the internet. Indeed, it led to the popularity of companies like eBay, which, over the past 15 years, perfected the model, only to be joined by other e-commerce giants getting into the auctions business.
But now, auctions are almost a nonentity. Online commerce continues to grow, but the share of auction transactions has shrunk. Instead, buyers are paying the retail prices they see. Even eBay no longer has a majority of its transactions occurring via auctions.
So what happened? Well, it turns out that consumers don't find auctions worth the bother. According to a working paper by three Stanford University economists and an economist for eBay Research Labs, posted by the National Bureau of Economic Research, buyers just think auctions aren't worth the trouble -- even if it means getting a better price.
In fact, auctions aren't that entertaining anymore.
"Ten years ago, internet auctions were a form of online entertainment," the authors conclude. "Today, YouTube, Facebook and other online diversions may have increased the demand for convenient shopping."
Auctions, of course, were never convenient. A buyer finds a product he's looking for, and then places a bid. That's where the fun -- more accurately, the work -- begins. In a competitive-bidding environment, bidders have to top one another. Often, for hard-to-get items, that meant furious bidding in the last seconds.
It was a good proposition in the beginning because, frankly, it was entertaining. Sellers got a higher profit as bidding took place, and the buyers got their products after engaging in cyber warfare with their consumer rivals.
But scale took a bit of the fun out of the process. Retailers began selling products on auction platforms like eBay in a big way. That made those platforms less likely to attract buyers looking for odder items, which lent themselves to auction bidding. (The authors point out eBay's first item sold was a broken laser pointer.)
Not every buyer was that interested in bidding, so posted retail prices emerged and quickly overtook both share in items sold and revenue from auctions.
Some circles have lamented the downfall of the online auction as being bad for price discovery. If sellers set the price, rather than buyers, they are somehow more capable of overcharging customers. Posted bids made the buying of goods more transparent.
But consumers have actually benefited more from posted prices and the shift away from auctions. For one thing, just because competitive bidding is dying doesn't mean that competitive pricing is headed for the grave, as well. In fact, the online buyer can comparison shop for any item simply by using Google. It is incumbent on the seller to price down, rather than the buyer to bid up.
Second, buyers have rationality in their purchasing. It is true that, in a free market, the value of any item is "worth" whatever someone is willing to pay for it. But, come on: $150 for a My Little Pony?
With apologies to Bronies, that is still an area, the authors note, where auctions will always have a place. The more idiosyncratic the item, the more auctions make sense.
But for most items, competitive posted prices are the way to go. They may not be fun, but they seem far more profitable for everyone.