DIAMONDS FOREVER—ONLINE the Gem Market Is a Global One, with Hundreds of Thousands Online Competitors (Such As Tiffany’S at Tiffany.Com)

Chapter Two: E-Marketplaces: Structures and Mechanisms 1

ONLINE FILE W2.1 DIAMONDS FOREVER—ONLINE The gem market is a global one, with hundreds of thousands online competitors (such as Tiffany’s at tiffany.com). of traders buying about $50 billion in gems each year. The Kogen makes only 20 to 25 percent profit, about half the age-old business is very inefficient: Several layers of inter- profit that other gem dealers make. Unsatisfied customers mediaries can jack up the price of a gem 1,000 percent can return merchandise within 30 days, no questions between its wholesale and final retail price. asked. The company uses both e-procurement and Chanthaburi (Thailand) is one of the world’s leading traditional methods to buy the least expensive gems from centers for processing gems. That is where an American, 60 different countries. Delivery to any place in the world Don Kogen, landed at the age of 15 to search for his is made via FedEx, at about $15 per shipment. To make fortune. He found it in about 10 years. After failing to his business even more competitive, Kogen is trying to become a gem cutter, Kogen moved into gem sorting, and reduce Thaigem’s huge gems inventory, which in 2002 soon he learned to speak Thai. For 3 years, he observed he turned over once in a year (his goal is to reduce it to how gem traders haggled over stones, and then he decided 6 months). to try the business himself. He started by purchasing Thaigem’s name is trusted by over 68,000 potential low-grade gems from sellers who arrived early in the customers worldwide. Kogen himself enjoys a solid morning and then selling them for a small profit to reputation on the Web. For example, he uses eBay to dealers from India and Pakistan who arrived late in the auction gems as an additional selling channel. Customers’ day. This quick turnover of inventory helped him build comments on eBay are 99 percent positive. By 2004, up his capital resources. Thaigem had become the EC arm of Thaigem Global Using advertising, he reached the U.S. gem market Marketing Ltd. and its sister company, NCS group and soon had 800 potential overseas customers. Using (a gemstone wholesaler). Thaigem sells both B2B and faxes, he shortened the order time, which resulted in B2C on the Web. decreasing the entire time from order to delivery. These various business methods enabled Kogen to grow his mail- order business to $250,000 a year by 1997. Questions In 1998, Kogen decided to use the Internet. Within a 1. Describe Thaigem’s B2B and B2C business models, month, he established a Web site (thaigem.com) and sold including its revenue model. How are logistics his first gem online. By 2001, the revenue from his online and payments organized? (Visit thaigem.com for business reached $4.3 million, and it more than doubled (to details.) $9.8 million) in 2002. Online sales account for 85 percent 2. During the 2000–2002 shakeout of dot-coms, of revenues. The buyers are mostly dealers or retailers such Thaigem prospered. Why do you think it was not as Wal-Mart or QVC, although he also sells to small buyers. affected by the dot-com downturn? Kogen buys raw or refined gems from all over the world, some online, trying to cater to the demands of his 3. Of the $45 billion annual sales in the gem industry, customers. Payments are made safely, securely, and only about 3 percent are done online. Do you think conveniently using PayPal (paypal.com). that selling gems online will grow to more than Thaigem’s competitive edge is its low prices. The 3 percent? Why or why not? proximity to gem-processing factories and low-cost labor 4. Go to bluenile.com and diamonds.com. Compare them enables Kogen to offer prices significantly lower than his with thaigem.com. How do they differ?

REFERENCES FOR ONLINE FILE W2.1 eBay. stores.ebay.com (accessed January 2008). Thaigem.com. thaigem.com (accessed January 2008). Meredith, R. “From Rocks to Riches.” Forbes Magazine, August 8, 2002. 2 Part 1: Introduction to E-Commerce and E-Marketplaces

Online File W2.2 Examples of Digital Products

1. Information and entertainment products: ◗ Paper-based documents: Books, newspapers, magazine journals, store coupons, marketing brochures, newsletters, research papers, and training materials ◗ Product information: Product specifications, catalogs, user manuals, and sales training manuals ◗ Graphics: Photographs, postcards, calendars, maps, posters, and X-rays ◗ Audio: Music recordings, speeches, and lectures ◗ Video: Movies, television programs, and video clips ◗ Software: Programs, games, and development tools 2. Symbols, tokens, and concepts: ◗ Tickets and reservations: Airlines, hotels, concerts, sports events, and transportation ◗ Financial instruments: Checks, electronic currencies, credit cards, securities, and letters of credit 3. Processes and services: ◗ Government services: Forms, benefits, welfare payments, and licenses ◗ Electronic messaging: Letters, faxes, and telephone calls ◗ Business-value-creation processes: Ordering, bookkeeping, inventorying, and contracting ◗ Auctions, bidding, and bartering ◗ Remote education, telemedicine, and other interactive services ◗ Cybercafes, interactive entertainment, and virtual communities Chapter Two: E-Marketplaces: Structures and Mechanisms 3

ONLINE FILE W2.3 HOW RAFFLES HOTEL IS CONDUCTING E-COMMERCE The Problem inventory. A direct-to-consumer model provides long-term Raffles Hotel, one of Singapore’s colonial-era landmarks, competitive advantages. It decreases dependence on is part of a worldwide group of luxury and business hotels. intermediaries, discounters, and traditional channels that Raffles Hotel operates in a very competitive environment. are slowly becoming obsolete. To maintain its world-renowned reputation, the hotel The Web site has recently been updated with spares no effort on every facet of its operation. The success improved booking functionalities and new interactive of the group and each of its hotels depends on the group’s features. The site includes information in multiple ability to attract customers to its hotels and facilities and languages to leverage the fast-growing Internet booking on its ability to contain costs. The group also operates the trends in some of the company’s key markets. Swissôtel brand of hotels worldwide. Both the Raffles and Swissôtel brands share a reservation system. The Results The Solution Increased bookings through Raffles’ proprietary Web sites To maintain its image and contain costs, Raffles must resulted in a strong growth of 77 percent in rooms revenue address two types of issues—B2C and B2B. On the B2C from this channel, exceeding both 2004’s strong growth of side, Raffles maintains a diversified corporate portal, 64 percent and the industry-wide 2004 Internet growth raffles.com, that introduces customers to the company and rate of 32 percent (as reported by TravelCLICK in its 2004 its services. The portal includes information on the hotels, eTRAK report). a reservation system, links to travelers’ resources, a CRM In 2005, the global portal community consists of program, and an online store for Raffles products. The Web over 5,900 organizations. Annually, more than 470,000 site capitalizes on the underlying qualities of the luxurious purchase order transactions worth over $200 million are Raffles hotel product to communicate to the online accrued. Forty-two active buying organizations including audience. It has a clearly defined and well-constructed hotels, offices, and retailers from around the world navigation that integrates the brand-level site with the provide more than $1 million in savings. The portal individual hotel Web sites. also generates regular reports for buyers, showing savings The Web site uses an architecture with logical and gained from this competitive pricing model. Buyers and consistent navigational tiers, which has proven to be a sellers garner improvements by using technology to highly successful approach. Based on the individual hotel increase productivity per human capital, linking to strategy, product mix, and target audience, the Web site supply chain solutions through the Internet, increasing navigation reflects the multitiered navigation structure. inventory management, procurement operations, and Each tier represents an order of authority that helps lay B2B collaboration in a knowledge-based environment. out the organization of the Web site. The tiered structure The hotel was purchased in 2006 by an investment group moves users comfortably and easily toward a set of that has made it the second-largest luxury hotel chain services, including the reservation process. This helps to in the world. focus on incremental reservations growth and dynamic content management. Questions The Web site has an integrated online reservation system that provides bookers with instant online booking 1. Identify the e-marketplaces in this case. facility. One section of the site, Raffles Direct, is designed 2. List all the EC mechanisms used by Raffles and how to provide the corporate market with a user-friendly tool they are used. to book with their negotiated rates online. The strategic 3. What other EC mechanisms would you recommend to focus of using the Internet as a key driver for distribution Raffles? is based on it being the ultimate direct-to-consumer distribution medium. It conforms to the lowest cost 4. List the EC business models used by the company. and most inexpensive method to distribute hotel room 5. List the type of transactions conducted by Raffles. 4 Part 1: Introduction to E-Commerce and E-Marketplaces

REFERENCES FOR ONLINE FILE W2.3 Raffles.com. raffles.com (accessed January 2008). PR2005_1st/Jan05_eTRAK.html (accessed January TravelCLICK. “Major Hotel Chains Grew Internet 2008). Reservations by 24 percent 2004 YTD.” Hotelonline. Wikipedia. “Raffles Hotel.” 2007. en.wikipedia.org/ com, January 24, 2005. hotel-online.com /News/ wiki/Raffles_Hotel (accessed January 2008).

ONLINE FILE W2.4 NTE EVENS THE LOAD The hauling industry is not very efficient. Although trucks buyers and sellers who could connect through it. By using are likely to be full on outbound journeys, they are often the Internet, NTE has been able to extend its reach down to empty on the way back. (About 50 percent of the trucks the level of individual truck drivers and provide a much wider on America’s roads at any one time are not full.) National range of services. Today, drivers can also use wireless Transportation Exchange (NTE) has attempted to solve Internet access devices to connect to the NTE Web site on this problem. the road. NTE (nte.net) uses the Internet to connect shippers who In 2001, NTE expanded its services to improve have loads they want to move cheaply with fleet managers inventory management, scheduling, and vendor compli- who have space to fill. NTE helps create what is called a spot ance along the entire supply chain. NTE’s software is market (a very short-term or one-time job market) by setting integrated with its customers’ operations and systems. daily prices based on information from several hundred fleet The company also offers such value-added services as managers about the destinations of their vehicles and the insurance, performance reporting, and customer care. amount of space they have available. (Such a spot market NTE’s business is currently limited to ground transporta- differs from repetitive arrangements that are negotiated and tion within the United States. In Hong Kong, Arena.com secured by a long-term contract.) NTE also gets information (arena.com.hk) provides similar port services with its from shippers about their needs and flexibility in dates. product called LINE (Logistics Information Network It then works out the best deals for the shippers and the Enterprise). haulers. When a deal is agreed upon, NTE issues the contract and handles payments. The entire process takes only a few minutes. NTE collects a commission based on the value of Questions each deal, the fleet manager gets extra revenue that they 1. What type of transaction is done at NTE? What type would otherwise have missed out on, and the shipper gets of business model does NTE use? a bargain price, at the cost of some loss of flexibility. 2. What are the benefits of NTE’s services to truckers? When NTE was first set up in 1995, it used a proprietary To shippers? network that was expensive and that limited the number of

REFERENCES FOR ONLINE FILE W2.4 Arena.com. arena.com.hk (accessed January 2008). The Economist. “Business and the Internet.” The Davidson, J. “Driving Logistics Online Markets.” 2001. Economist, June 26, 1999. nte.net/dynamic/articles/TW0401.pdf (no longer Nte.net. nte.com (accessed January 2008). available online). Chapter Two: E-Marketplaces: Structures and Mechanisms 5

ONLINE FILE W2.5 INFOMEDIARIES AND THE INFORMATION FLOW MODEL

Information Flow

Information Buyer on Products Information and Services Sellers Infomediaries Buyers

Infomediary Services Infomediary Services • Matching • Matching • Search/complexity • Search/complexity • Privacy • Privacy • Informational • Informational • Infrastructural • Infrastructural • Content • Content • Community • Community

Flow of Products/Services

Revenue from Sellers Revenue from Buyers • Advertising • Membership/subscription fee • Transactions • Transactions • Membership/subscription fee • Fee for services

Online File W2.6 Limitations of Direct Interactions of Infomediaries

1. Search costs. It may be expensive for providers and consumers to find each other. In electronic marketplaces, thousands of products are exchanged among thousands of vendors and millions of consumers. Producers may have trouble accu- rately gauging consumer demand for new products; many desirable items may never be produced simply because no one recognizes the demand for them. Some intermediaries maintain databases of customer preferences, and they can predict demand and reduce search costs by selectively routing information from providers to consumers and by matching customers with products and/or services. 2. Lack of privacy. Either the buyer or seller may wish to remain anonymous or at least protect some information relevant to a trade. Intermediaries can relay messages and make pricing and allocation decisions without revealing the identity of one or both parties. 3. Incomplete information. The buyer may need more information than the seller is able or willing to provide, such as information about product quality, competing products, or customer satisfaction. An intermediary can gather product information from sources other than the product provider, including independent evaluators and other customers. Many third-party Web sites provide such information (e.g., bizrate.com, mysimon.com, and consumerguide.com). 4. Contract risk. A consumer may refuse to pay after receiving a product, or a producer may provide inferior products or give inadequate postpurchase service. Intermediaries have a number of tools to reduce such risks. First, the broker can disseminate information about the past behavior of providers and consumers. The threat of publicizing bad behavior or removing a seal of approval may encourage both producers and consumers to meet the broker’s standard for fair dealing. Or the broker may accept responsibility for the behavior of parties in transactions it arranges and act as a “policeman” on its own. Third, the broker can provide insurance against bad behavior. The credit card industry uses all three approaches to reduce providers’ and consumers’ exposure to risk. In the online auction arena or when you buy expensive items or buy from an unknown seller, some companies act as escrow agencies, accepting and holding payment from the buyer while the seller completes delivery of the product or service to the escrow agency. Then, if the product is satisfactory, the agency releases payment to the seller and the product to the buyer. 5. Pricing inefficiencies. By jockeying to secure a desirable price for a product, providers and consumers may miss opportunities for mutually desirable trades. This is particularly likely in negotiations over unique or custom products, such as houses, and in markets for information products and other public goods where freeloading is a problem. Intermediaries can use pricing mechanisms that induce just the appropriate trades; for example, dealing with an imbalance of buy and sell orders in stock markets. For a study on how different strategies of intermediation affect the efficiency of electronic markets, see Yarom et al. (2003).

REFERENCE FOR ONLINE FILE W2.6 Yarom, I., C. V. Goldman, and J. S. Rosenschein. Commerce.” IEEE Intelligent Systems (November– “The Role of Middle-Agents in Electronic December 2003). Chapter Two: E-Marketplaces: Structures and Mechanisms 7

ONLINE FILE W2.7 ELECTRONIC CATALOGS AT OFFICEMAX

Boise Cascade Office Products, now a part of OfficeMax requested. As indicated earlier, the vast majority of (officemaxsolutions.com), is a $5 billion office products customers use the online catalogs. It used to take about wholesaler and retailer. Its B2B customer base includes 6 weeks to produce a single paper customer catalog, over 100,000 large corporate customers and 1 million primarily because of the time involved in pulling together small ones, as well as individuals. The company’s 900-page all the data. Now the process of producing a Web catalog paper catalog used to be mailed to customers once each that is searchable, rich in content, and available in a year. Throughout the year, Boise also sent mini-catalogs variety of formats takes only 1 week. tailored to customers’ individual needs based on past One major advantage of B2B customized catalogs is buying habits and purchase patterns. The company sells pricing. If everyone has the same catalog, you cannot over 200,000 different items and has a global reach, show the customized price for each buyer, which is based allowing it to serve multinational companies. on the contract the customer signed and on the volume of In 1996, the company placed its catalogs online. Now goods being purchased. customers view the catalog at officemaxsolutions.com and Boise estimates that electronic orders cost approxi- can order straight from the site or submit orders by e-mail. mately 55 percent less to process than paper-based The orders are shipped the next day. Customers are then ones. As of 2005, Boise sells to small companies and billed. In 1997, the company generated 20 percent of its individuals under the OfficeMax brand (OfficeMax is a sales through the Web site. In early 1999, the figure was Boise company). over 30 percent. The company acknowledges that its Internet business is the fastest-growing segment of its business. By 2004, the majority of sales were made via Questions the Internet. 1. What are the advantages of the electronic catalog to Boise prepares thousands of individualized catalogs Boise Cascade? To its customers? for its largest customers. As of 2002, the company has been sending paper catalogs only when specifically 2. What are the advantages of customized catalogs?

REFERENCES FOR ONLINE FILE W2.7 boiseoffice.com/about/ecommerce.shtm (accessed Netscape Customer Profiles. wp.netscape.com/ April 2003) (no longer available online). solutions/business/profiles/boisecascade.html Internet Retailer. “OfficeMax Drives Up Conversions (accessed April 2003). After Redesigning Site with Customer Input.” OfficeMaxSolutions.com. officemaxsolutions.com February 10, 2006. internetretailer.com/ internet/ (accessed January 2008). marketing-conference/98725-officemax-drives- up-conversions-after-redesigning-site-customer- input.html (accessed January 2008). 8 Part 1: Introduction to E-Commerce and E-Marketplaces

ONLINE FILE W2.8 THE “NAME-YOUR-OWN-PRICE” C2B MODEL One of the most interesting e-commerce models is the of telecommunications and Internet infrastructure, to “name-your-own-price” model. This model, pioneered by offer a range of services in Asia. Priceline.com also has Priceline.com (priceline.com), enables consumers to offices in many other countries. achieve significant savings by naming their own price for By 2002, the company offered products for sale in goods and services. Basically, the concept is that of a C2B two categories: (1) a travel service that offers leisure reverse auction, in which vendors bid on a job by submit- airline tickets, hotel rooms, rental cars, vacation packages, ting offers and the lowest-priced vendor or the one that and cruises, and (2) a personal finance service that offers meets the buyer’s requirements gets the job. home mortgages, refinancing, and home equity loans Priceline.com either presents consumer offers to through an independent licensee. sellers who can fill as much of that guaranteed demand as In 2007, Priceline’s PriceBreakers service offers last- they wish at price points requested by buyers, or, more minute travel bargains to a growing base of deal-seeking likely, searches a Priceline.com database that contains customers. PriceBreakers is popular among Internet vendors’ minimum prices and tries to match supply against bargain hunters. In August 2007, PriceBreakers deals were requests. Priceline.com asks customers to guarantee accep- viewed more than 2 million times. PriceBreakers highlights tance of the offer if it is at or below the requested price. 20 to 30 of the best last-minute travel deals with deep Priceline.com guarantees this by having the buyer’s credit discounts. Each deal shows the estimated amount of time card number. Priceline.com’s “virtual” business model left before it is no longer available. All deals are subject to allows for rapid scaling; it uses the Internet to determine availability and change daily. consumer demand and then tries to fill it. PriceBreakers deals are supported by a broad promo- However, Priceline.com and similar companies have tional network that includes: one limitation: When a buyer names a price for an airline ◗ PriceBreakers deals distribution to more than 6 million ticket, the buyer is not told the airline, how many stops registered e-mail addresses. are involved, or what time of the day the flight will depart ◗ Web 2.0 distribution through RSS and XML feeds of until the buyer accepts the offer and pays. Then, the buyer PriceBreakers deals that can be received by most must take the offer or lose that money that was guaran- popular online readers, such as MyYahoo!, GoogleReader, teed by a credit card. To overcome this problem, travelers Amphetadesk, FeedDemon, NewsFire, Feedreader, can go to online travel sites such as expedia.com, and Bloglines. orbitz.com, travelocity.com, kayak.com, or others that provide price comparisons. By becoming familiar with the In addition, PriceBreakers is now being supported routes and flights, a buyer may be able to find what is with a permanent “live” deals feed on the newly redesigned available and then go to Priceline.com and bid for lower Priceline.com homepage. The instant a new deal hits prices, knowing basically who is offering what. This way, PriceBreakers, it is highlighted in the special box. buyers will get real bargains. Priceline.com has offered multiple products and services: travel services, personal finance services, an Questions automotive service that offers new cars for sale, and 1. What is the logic behind the “name-your-own-price” credit cards and long-distance calling. (In 2000, model? Priceline.com suspended the delivery of food, gasoline, 2. Describe Priceline.com’s business model. and groceries due to accumulated losses.) Some of the services are offered via partners. Priceline.com receives 3. How does Priceline.com match supply and demand? either a commission for referrals or royalties for use of 4. Enter priceline.com and try to book a flight but stop its technology. In 2000, the company teamed up with short of giving your credit card number. Comment on Hutchison Whampoa Limited, one of Asia’s largest owners your experience. Chapter Two: E-Marketplaces: Structures and Mechanisms 9

Online File W2.9 E-Auction Fraud and Its Prevention

According to the National Consumers League (nclnet.org), McKay (2003), and NCL’s National Fraud Information Center (2004), of all of the e-commerce activities conducted over the Internet, fraud was the most prevalent and serious in e-auctions until 2005. The U.S. Fraud Complaint Center says that the median dollar loss per auction fraud was $225 in the first half of 2001, but jumped to $489 in the second half of the year, as criminals evidently focused on high-tech, big-ticket items (Lee 2002), and to $803 in 2004 (per National Fraud Information Center 2006). In 2003, auction fraud was 35 to 40 percent more prevalent than in 2002, judging from the reported 400 frauds at any given time, as compared with 250 in 2002 (Sullivan 2003). However, in 2005 identity theft became the major problem (37 percent of all complaints), and auctions moved to second place (12 percent). See ftc.gov (2006). According to Hearn (2005), almost 50 percent of all eBay users have had problems, and 39 percent of those affected complain that their problems have never been resolved. Types of E-Auction Fraud Fraud may be conducted by sellers, buyers, or others (for a list, see ftc.gov/bcp/pubs/online/auctions.htm). The following are some examples of fraud; some are unique to e-auctions, others can be found in any type of EC. Bid Shielding. The use of phantom bidders to bid at a very high price when an auction begins is called bid shielding. The phantom bidders pull out at the last minute, and the bidder (friend of the phantom bidder) who bids with a very low price wins. Shilling. A similar type of fraud can be conducted by sellers. In this fraud, called shilling, sellers arrange to have fake bids placed on their items (either by associates or by using multiple user IDs) to artificially jack up bids. If they see that the legitimate high bid does not meet their expectations as the end of an auction draws near, they might pop in to sell the item to themselves. This way they can put the item up again for auction, attempting to get a higher price next time. Fake Photos and Misleading Descriptions. In reaching for bidders’ attention, some sellers distort what they can truly sell or fail to disclose all relevant information about the item(s). Borrowed images, ambiguous descriptions, and falsified facts are some of the tactics that sellers might employ to convey a false impression of the item. Improper Grading Techniques. The grading of items is one of the most hotly debated issues among buyers and sellers. Condition is often in the eye of the beholder. Although many grading systems have been devised and put to use, condition is still subject to interpretation. Bid Siphoning. Sellers lure bidders to leave a legitimate auction by offering to sell the “same” item at a lower price. The buyer then loses protections offered by the auction site, such as insurance, guarantees, quality, and so on. Selling Reproductions as Originals. A seller sells something that the seller claims is original, but it turns out to be a reproduction. Failure to Pay. Buyers do not pay after a deal is agreed upon. Failure to Pay the Auction House. Sometimes sellers fail to pay the auction’s listing or transaction fees. High Shipping Costs and Handling Fees. Some sellers charge excessive rates to cover the cost of packaging supplies, “handling” costs, or other overhead intangibles. Failure to Ship Merchandise. Money is paid out, but the merchandise never arrives. Loss and Damage Claims. Buyers claim that they did not receive an item or that they received it in damaged condition and then ask for a refund. Fake Escrow Services. Presenting itself as an independent trusted third party, a fake service will take the seller’s items and the buyer’s money and disappear. Switch and Return. The seller has successfully auctioned an item, but when the buyer receives it, the buyer is not satisfied. The seller offers a cheerful refund; however, what the seller gets back is a mess that does not much resemble the item that was originally shipped. Other Frauds. Many other types of fraud also are possible, including the sale of stolen goods, the use of false identities, providing false contact information, and selling the same item to several buyers. For more about auction frauds see Gavish and Tucci (2006), ftc.gov, and scambusters.org. (continued) 10 Part 1: Introduction to E-Commerce and E-Marketplaces

Online File W2.9 (continued)

Protecting Against E-Auction Fraud The largest Internet auctioneer, eBay, has introduced several measures in an effort to reduce fraud. Some are free; others are not. The company has succeeded in its goal: less than one-tenth of 1 percent of the transactions at eBay were fraudulent in 2001 (Konrad 2002). The following are some of eBay’s antifraud measures. User Identity Verification. Verified eBay User, a voluntary program, encourages users to supply eBay with information for online verification. Authentication Service. Product authentication is a way of determining whether an item is genuine and described appropri- ately. Authentication is very difficult to perform because it relies on the expertise of the authenticators. eBay has links to companies that provide this specialized service. Grading Services. Grading is a way of determining the physical condition of an item, such as “poor quality” or “mint condition.” The actual grading system depends on the type of item being graded. Feedback Forum. The eBay Feedback Forum allows registered buyers and sellers to build up their online trading reputations by providing users with the ability to comment on their experiences with other individuals. Insurance Policy. eBay offers insurance underwritten by Lloyd’s of London. Escrow Services. For items valued at more than $200 or when either the buyer or seller feels the need for additional security, eBay recommends escrow services (for a fee). With an easy-to-access link to a third-party escrow service, both partners in a deal are protected. Nonpayment Punishment. eBay implemented a policy against those who do not honor their winning bids. To help protect sellers, a first-time nonpayment by a buyer results in a friendly warning. A sterner warning is issued for a second-time offense, a 30-day suspension for a third offense, and indefinite suspension for a fourth offense. Appraisal Services. Appraisers use a variety of methods to appraise items, including expert assessment of authenticity and condition and reviewing what comparable items have sold for in the marketplace in recent months. Physical Inspection. Providing for a physical inspection can eliminate many problems. This is especially true for collec- tors’ items. When the seller and buyer are in the same vicinity, it is easy to arrange for such inspections. eBay offers inspection services on a regional basis, so buyers can arrange for nearby inspections. Item Verification. One way of confirming the identity and evaluating the condition of an item is through verification. With verification, neutral third parties will evaluate and identify an item through a variety of means. Buyer Protections. The PayPal Protection Program shields buyers by covering up to $500 of their purchase at no additional cost. The eBay Standard Purchase Protection Program provides up to $200 coverage (minus a $25 processing cost) for items that are not received or items that are not as described in the listing. Spoof (Fraudulent) Web Site Protection. The eBay Toolbar with Account Guard enables eBay members to protect their accounts by indicating when they are on an eBay or PayPal site and warning them when they are on a potentially fraudulent, or spoof, Web site. eBay Security Center. The eBay Security Center provides guidance on buying safely, selling safely, and paying safely, as well as valuable third-party, government, and law-enforcement resources. The Security Center is a valuable resource for all users, from first-time buyers who want information on safeguarding online transactions to high-volume sellers who want to protect their copyrights. It also offers a dispute resolution service. For more on eBay’s antifraud and security efforts, see eBay (2006), Gavish and Tucci (2006), Hof (2005), and Kobler et al. 2005. Chapter Two: E-Marketplaces: Structures and Mechanisms 11 REFERENCES FOR ONLINE FILE W2.9 Gavish, B., and C. L.Tucci. “Fraudulent Auctions on the chicagotribune.com/technology/local/chi-020311crime, Internet.” Electronic Commerce Research, April 2006. 0,6398375.story (no longer available online). Hearn, L. “Buyer Beware at Online Auctions.” The Age, McKay, C. “Online Auctions Dominant Consumer July 26, 2006. theage.com.au/news/biztech/buyer-beware- Fraud.” National Consumers League, March 25, 2003. at-online-auctions/2006/07/26/1153816238964.html fugitive.com/c-online-auction-fraud.html (accessed January (accessed January 2008). 2008). Hof, R. “Lessons from eBay Live!” BusinessWeekOnline, National Fraud Information Center. “Internet Fraud June 27, 2005. businessweek.com/the_thread/techbeat/ Statistics, January–June 2004.” 2004. fraud.org/ archives/2005/06/after_spending.html (accessed January janjune2004ifw.htm (accessed January 2008). 2008). National Fraud Information Center. “Internet Scams Kobler, R. et al. (eds.). The Complete Guide to Using Fraud Trends January–December 2005.” 2006. fraud. eBay. Special Publication, Lincoln, NE: Smart org/2005_Internet_Fraud_Report.pdf (accessed January Computing, 2005. 2008). Konrad, R. “eBay Touts Anti-Fraud Software’s Might.” Sullivan, B. “Auction Fraud on the Rise Some Say.” News.com, June 5, 2002. marketwatch-cnet.com.com/ MSNBC, July 29, 2003. msnbc.msn.com/id/3078737 2100–1017_3–932874.html (accessed January 2008). (accessed January 2008). Lee, B. “Web’s Bloom a Garden for Sophisticated Scammers.” Chicago Tribune, March 11, 2002. 12 Part 1: Introduction to E-Commerce and E-Marketplaces

ONLINE FILE W2.10 REVERSE MORTGAGE AUCTIONS IN SINGAPORE Homebuyers like to get the lowest possible mortgage The banks involved in the auctions can see the offers rates. In the United States, Priceline.com (priceline.com) made by competitors. Flexibility is high; in addition to will try to find you a mortgage if you “name your own interest rates, banks are willing to negotiate down payment price.” However, a better deal may be available to home- size and the option of switching from a fixed-rate to buyers in Singapore, where reverse auctions are combined variable-rate loan. On average, there are 2.6 bank bids per with “group purchasing,” saving about $20,000 over the customer. life of a mortgage for each homeowner, plus $1,200 in As of summer 2003, in addition to mortgages, waived legal fees. DollarDEX (Dollardex.com 2004) offers DollarDEX offers car loans, insurance policies, and travel the service in Singapore, Hong Kong, and other countries. services. It also allows comparisons of mutual funds that Here is how DollarDEX arranged its first project: The have agreed to give lower front-end fees. It also offers site invited potential buyers in three residential properties insurance (including health, motor, home, home content, in Singapore to join the service. Applications, including and SARS insurance). Customers also can choose one or financial credentials, were made on a secure Web site. more unit trusts in which to invest and set up online gift Then, seven lending banks were invited to bid on the registries for weddings or specials events and invite loans. In a secure “electronic room,” borrowers and lenders friends to place funds in them. Reports and advice are negotiated. After 2 days of negotiations of interest rates available online as well as face-to-face. and special conditions, the borrowers voted on one bank. In the first project, 18 borrowers agreed to give the job to United Overseas Bank (UOB), paying about 0.5 percent less Questions than the regular mortgage interest rate. The borrowers 1. How is group purchasing organized at Dollardex.com? negotiated the waiver of the legal fee as well. From this What services are offered? first project, UOB generated $10 million of business. Today, 2. Why does a reverse auction take place? DollarDEX allows customers to participate in an individual reverse auction if they do not want to join a group. 3. Can this model exist without an intermediary?

REFERENCES FOR ONLINE FILE W2.10 DollarDEX. dollardex.com (accessed September 2006). current=../insights/home&type=press&start=640 DollarDEX. “DollarDEX Launched Reverse Auction &searchText= (accessed September 2006). on Mortgages.” dollardex.com/SG/index.cfm?