The Selection Of Pricing Modes In Online Transaction

As the two major pricing modes in online trade, auction and fixed-price havetheir own advantages. Online auction is a pricing mode that consumers can decide theprice themselves, so the object is allocated to the consumer who has highest purchasewillingness. In addition, it can provide more information to buyers and sellers. Thefixed-price is determined by sellers, its main advantage is further transaction costsaving.Along with the rapid development of online transactions, the platform websitesrepresented by eBay and Taobao, play a more and more important role. But on the useof pricing mode, these two platform websites had preached a different situation. Since1995, all goods in eBay were traded through auction, but now the ratio of usingfixed-price had already exceed50%. In the contrary, since the inception ofTaobao.com in2003, all goods were traded through fixed-price. But auction hasbecome more and more active now. This oncoming trend brings us such questions:what’s the boundary of online auction and fixed-price? And what are the key factorsdetermine that which trading mode should be chosen?Therefore, based on the goods attribute and the characteristic of sellers, we willcomprehensively apply Auction Theory, Game Theory, the theory of industrialorganization and Econometric mode to compare online auction and fixed-price, andattempt to build an attributes index system to judge that whether the product issuitable for online auction.The main work and conclusion of this paper are as follows: (1) We enumerate the usage condition of online auction and fixed-price on eBayand Taobao, the typical representation of online shopping platforms. Based on thedifference and the variation trend of these two websites, we raise up the hypothesisthat what kinds of goods transaction attributes will significantly affect the choice ofsuitable trading mode for different goods. It’s also the foundation of the theoreticaland positive research below.(2) Based on the risk attitude and transaction cost of sellers, we built the basicmodel to compare the profit of a seller who using auction or fixed-price to trade. Andthen we describe the competitive result of the two trading mode exist simultaneouslyin a platform，to judge which pricing mode will be chosen by sellers.When the seller is risk neutral, considering the sale probability, the expect returnof fixed-price cannot catch up auction. Contrary, when the sellers aren’t risk neutral, ifthe quantity of consumers is quite limited, risk aversion sellers prefer auction, riskpreference sellers prefer fixed-price. But when the numbers of consumers is highenough, no matter what kind of risk attitude that the seller has, auction can make themmore profitable. On the other hand, we consider the transaction cost, mainly thedifferent time cost and fixed cost of auction and fixed-price. Under this circumstance,sellers always choose fixed-price. But the raise of unit time cost will narrow the gapof the revenue of online auction and fixed-price when there are fewer customers.To discuss the competitive result of auction and fixed-price when they existsimultaneously, we can find that when consumers know the fixed-price level ofhomogeneous goods clearly, auction cannot be as profitable as fixed-price.(3) On the basis of the above model, we introduce the three key attributes intothe model gradually, including price reference, quality uncertainty and the value level,to judge the suitable trading mode for different kinds of products.Price reference refers the difficulty that bidders can find the fixed-price ofhomogeneous goods as a reference before bidding. The higher the price reference is,the easier for bidders to find the fixed-price information. We analysis the impact onthe utility of consumers and the sellers’ profit by the different price reference undergeneral multi-product auction model and the special case of single-product auction.The study finds that lower price reference will enhance the profit of auction seller andreduce the profit of fixed-price seller. Hence, online auction is only suitable of theproducts that have low price reference.Then we relax the assumption that consumers know the quality of the goods todiscuss the impact of quality uncertainty, which is caused by the serious informationasymmetry of online transaction. Based on the private preference of consumers, we rebuilt consumer utility function contains the quality uncertainty of goods. Thus wecan compare the profit of seller under affiliate auction and fixed-price tradingmechanism separately. It’s found that the higher quality uncertainty is, the moreprofitable for the seller to choose online auction. This trend is even more significantas the rise in the price level of goods. The existence of similar product will decreasethe quality uncertainty of the subject. Under this situation, the more profitabletransaction mode will become fixed-price when the goods are expensive, and cheapgoods can use online auction. But if the valuation depends on the relative quality tothe similar goods as reference, the higher the quality uncertainty is, the moreprofitable for the seller who uses auction.(4) To verify the result of theoretical research, we use trading data of eBay to dothe regression tests and data analysis.Firstly, we use the proportion of the fixed-price seller numbers in the totalamount of sellers who sell the same kind of goods to reflect price reference, and runseveral regressions based on the trading data of eight main kinds of goods on eBay toverify the effect of price reference attribute. On the other hand, we use the tradingdata of fashion and jewel category on eBay to do a data analysis and reveal the impactof quality uncertainty. We divide the quality uncertainty level into two levels, whichkind the goods belong to depends on whether it’s well-known brand. And then,assuming consumer valuation only depends on the relative quality of the object to itssimilar products, we use second hand trading data of Electric Commodity of eBay torun a regression. These three studies both confirm the results obtained by the abovetheoretical models.The main innovation points of this paper are as follows:(1) Building the basic model to compare the income of sellers who use onlineauction or fixed-price to trade.The existing researches pay more attention on the characteristic of buyers, andneglect sellers, who can make the decision to choose which trading mode. So inaddition to description of buyers behavior, we add the risk attitude and transactioncost of sellers into above pricing models, to compare the income of the sellers usingdifferent pricing modes. Without regard to seller factors, the revenue of auction sellerswas higher, because auction can recognize the bidder who has highest valuation. Onceconsidering the risk attitude and transaction costs of sellers, we can get the conditionthat the revenue of fixed-price may exceed auction under different customer numbers,time cost and risk aversion. It provide more rounded criterion for sellers to choosepricing mode, and enrich the online transaction theory, also become the foundation offollowing researches on the transaction attributes of goods. (2) The impact on the choice of pricing modes of goods transaction attributes:modeling.There are barely any researches based on the goods transaction attributes in thenetwork transaction, hence the question that which kinds of goods are suitable foronline auction hasn’t been answered yet. Based on the observation of transactions oneBay and Taobao, we select three goods attributes: price reference, quality uncertaintyand price level, introduce them into the auction and fixed-price pricing models, inorder to illustrate their impact on the choice of pricing modes.The introduction of price reference changes the hypothesis that all consumersknow about the fixed price of homogeneous goods, thus we can figure out that howthe differences of searching difficulty can affect the participation decision ofconsumers and the profit of sellers. Through this, the analysis can cover much morekinds of goods in online transaction. At the same time, the influence of qualityuncertainty which is caused by the serious information asymmetric in the onlinetransaction hadn’t been studied yet. So we introduce consumer utility functions withinformation asymmetric into affiliate value auction model, discuss how this specialtransaction attribute to affect sellers’ choice between online auction and fixed-price,and the impact of price level among this.(3) The impact on the choice of pricing modes of goods transaction attributes:positive research.The existing papers mostly run the regression through trading data of one or fewkinds of commodities, so it can’t describe the difference of the attributes betweendifferent commodities. In this paper, we use the trading data of all main class of goodson eBay.com to do positive tests, figure out the impact of price reference. And basedon the hypothesis raised in the theoretical model, we choose some kinds of goods tostudy the effect of quality uncertainty, through regression and data analysis. We bothverify the conclusions of theoretical models, and also give quantitative analysis of theimpact of the goods transaction attributes.(4) Try to establish standards to judge whether the product is suitable for onlineauction.According the above theoretical and positive analysis, we can preliminarily sumup the judgments of sellers’ choice between online auction and fixed-price.Overall, with high price reference, the seller should choose fixed-price. On thecontrary, with lower price reference, sellers may consider other two factors, namely quality uncertainty and value level, to decide the proper transaction mode. Whenconsumers’ valuation depends on their private preference, it’s more profitable forsellers to choose auction when the quality uncertainty is higher. When consumers’valuation mainly depends on the relative quality and its fluctuation, sellers maychoose fixed-price when the quality uncertainty is higher. No matter under whichcondition, the increase of goods value will exacerbate the effect of quality uncertainty.In addition, the change of seller factor also can affect the impact of goods transactionattributes: the decrease of unit time cost of sellers will strengthen the impact of pricereference and weaken the impact of quality uncertainty.