The implications of forecast accuracy on the benefits of online auctions in business-to-business and business-to-consumer environments

The internet is providing firms with an increased opportunity to use auctions as a price discovery mechanism for disposing surplus assets in both Business-to-Business (B2B) and Business-to-Consumer (B2C) environments. While numerous papers have focused on the savings that are attained by electronic auctions vis-a-vis conventional (non-internet-based) procurement practices in B2B environments, few have offered economic intuition or empirical evidence to gauge the performance of the new price distribution channels available to a seller firm that is ready to exploit the internet in B2B or B2C environment. We develop a stochastic model to compare the expected performance of an online auction approach relative to a fixed (posted or listed) price approach in the presence of the forecast errors that are associated with traffic intensity and the variance in customers' willingness-to-pay.