How Do You Win in Online Auctions?

SMITH BRAIN TRUST – The burgeoning secondary market of online business-to-business (B2B) auction platforms connect retailers to deeper pools of buyers – often discount stores and wholesale liquidators – for their unsold or returned inventory. A big challenge for the platform operators is how to tailor the auction design to most profitably match supply with demand.

One key design element that is often overlooked but can have a big impact on revenue is the platform’s listing policies, says Wedad Elmaghraby, professor of management science and operations management at the University of Maryland’s Robert H. Smith School of Business.

Elmaghraby has long studied online auctions and now in new research, she and her co-authors show that a platform’s listing policy, specifically, the number of days on which auctions close/end, has a big role in incentivizing bidder participation in auctions. The researchers studied the effect of concentrating or spreading out auction closing dates on the number of buyers bidding.

They find that adjusting the listing policy (supply) influences whether potential buyers place bids or wait and can increase sellers’ revenues by several percentage points.

“One one hand,” the researchers write, “increasing supply by having more auctions end on a given day can profitably incentivize more participation in auctions. But auctions ending the same day cannibalize each other and actually drive down prices that day.”

The researchers used data from a leading online platform that manages auctions to liquidate excess or returned inventory for more than 30 big-box retailers, including Costco, Walmart, Sears and Home Depot. The auctions work like an eBay auctions, lasting from one to four days, with a winner-takes-all bundle of similar products – electronics, household appliances, furniture or apparel – up for grabs. For the study, the researchers honed in on iPhone auctions. 

They culled through auction data to design the optimal listing policy to “induce the revenue-maximizing market thickness for any underlying level of expected supply.” They do this by concentrating auctions’ ending times on certain days of the week, which leads to a 7.3 percent increase in the platform’s revenues. The researchers also say the auction platform can boost revenues if it implements a recommendation system to selectively inform sellers and bidders of the number of auctions currently open on the platform.

They say the right system would increase the level of competition among bidders on days that the incoming supply is higher than average, once again helping to profitably match supply with demand.

Read more: “Managing Market Thickness in Online B2B Markets” is a working paper.

Wedad J. Elmaghraby is a Professor of Operations Management and Management Science in the Department of Decisions, Operations and Information Technology (DOIT)

Research interests: Business-to-Business procurement auctions and pricing that bridges economics and operations management. Her work incorporates themes of behavior, judgment heuristics, and biases in decision-making all with the aim of better understanding the behavioral influences in auctions and pricing decisions.

Selected accomplishments: With 20 studies published in refereed journals, she has served as an area editor for MS, M&SOM and POMS journals and has been invited as keynote speaker for the Behavioral Operations Management International Symposium in Shanghai, China, as well as the Cologne (Germany) Workshop on Auctions and Procurement, and as a Fellow to the ESEI Market Design Center in Zurich, Switzerland. She is currently co-Director of the Smith Analytics Consortium.

About this series: Maryland Smith celebrates Women Leading Research during Women’s History Month. The initiative is organized in partnership with ADVANCE, an initiative to transform the University of Maryland by investing in a culture of inclusive excellence. Other Women's History Month activities include the eighth annual Women Leading Women forum on March 5, 2019.

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