E-commerce 2023, 17e (Laudon/Traver)

Chapter 11 Social Networks, Auctions, and Portals

1) One of the first online virtual communities, formed in 1985, was:

A) The Well.
B) Myspace.
C) AOL.
D) The Motley Fool.
Answer: A
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

2) The technology used by early online communities was limited to mostly:

A) instant messaging.
B) FTP.
C) e-mail.
D) bulletin boards.
Answer: D
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

3) Which of the following is a community of members who self-identify with a demographic or

geographic category?
A) practice network
B) sponsored community
C) affinity community
D) interest-based social network
Answer: C
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

4) College Confidential is an example of a(n):

A) interest-based social network.
B) affinity community.
C) sponsored community.
D) practice network.
Answer: A
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

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5) Social network participation accounts for about what percent of the total time spent with
digital media?
A) 9.5%
B) 14.5%
C) 20.5%
D) 24.5%
Answer: B
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

6) Instagram is an example of a(n):

A) interest-based social network.
B) affinity community.
C) general community.
D) practice network.
Answer: C
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

7) Which social network functionality allows users to view a list of updates from friends as well
as advertisements and notifications in chronological order?
A) message board
B) timeline
C) friends' network
D) newsfeed
Answer: D
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

8) In 2022, around what percentage of Internet users uses social networks?

A) 54%
B) 64%
C) 74%
D) 84%
Answer: C
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

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9) Which of the following lists the top four social networks in the order of the number of their
U.S. users?
A) TikTok, Facebook, Instagram, Twitter
B) TikTok, Facebook, Instagram, LinkedIn
C) Facebook, TikTok, Instagram, Snapchat
D) Facebook, Instagram, TikTok, Snapchat
Answer: C
Difficulty: Difficult
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

10) Which of the following is a leading social network in Germany?

A) Xing
B) Tuenti
C) Orkut
D) Mixi
Answer: A
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

11) Which of the following has more than one billion worldwide users?
A) Facebook and LinkedIn
B) Facebook and TikTok
C) TikTok and Instagram.
D) Facebook and Instagram
Answer: D
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

12) Meta owns which of the following?

A) Pinterest
B) Snapchat
C) WhatsApp
D) Tumblr
Answer: C
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

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13) A survey of Fortune 500 companies found that almost all used:
A) Twitter.
B) Facebook.
C) LinkedIn.
D) Instagram.
Answer: C
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

14) On which of the following do users spent the least amount of time per month?
A) Snapchat
B) Twitter
C) Instagram
D) Pinterest
Answer: D
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

15) When did the first online communities form?

A) the 1970s
B) the 1980s
C) the 1990s
D) the 2000s
Answer: B
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

16) BlackPlanet is an example of a(n):

A) practice network.
B) interest-based social network
C) affinity community.
D) general community.
Answer: C
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

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17) Which of the following is an example of a practice network?
A) Peanut
B) Instagram
C) DebatePolitics
D) Doximity
Answer: D
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

18) Which of the following has the highest penetration of social network usage among Internet
users?
A) North America
B) Latin America
C) Europe
D) Asia-Pacific
Answer: B
Difficulty: Easy
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

19) Which age group has the fastest growing rate of Facebook usage?
A) 12-34
B) 35-45
C) 46-65
D) adults over 65
Answer: D
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

20) Which of the following social networks provides an open-source alternative to Twitter?
A) MeWe
B) Mastodon
C) BeReal
D) Vero
Answer: B
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

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21) Which of the following owns LinkedIn?
A) Meta
B) Google
C) Microsoft
D) Apple
Answer: C
Difficulty: Easy
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

22) Instagram is owned by which of the following?

A) Google
B) Apple
C) Meta
D) Microsoft
Answer: C
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

23) Which of the following statements about Instagram is not true?

A) In 2021, Instagram and Facebook both generated about the same amount of U.S. ad revenue.
B) Instagram is a social network that focuses on video and photo sharing.
C) Instagram is growing more quickly than Facebook.
D) Instagram users spend more time on Instagram than Facebook users spend on Facebook.
Answer: D
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

24) Howard Rheingold, one of The Well's early participants, coined the term ________ to refer
to "cultural aggregations that emerge when enough people bump into each other often enough in
cyberspace."
A) social networks
B) virtual communities
C) community portals
D) social forums
Answer: B
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

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25) A(n) ________ offers members focused discussion groups, help, information, and knowledge
related to an area of shared interest.
A) practice network
B) general community
C) affinity community
D) interest-based social network
Answer: A
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

26) The amount of time visitors spend on a site is a measure of:

A) reach.
B) loyalty.
C) conversation.
D) engagement.
Answer: D
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

27) What percent of the world's total population users social networks?
A) 25%
B) 45%
C) 55%
D) 60%
Answer: B
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

28) TikTok skews much younger than the other major social networks.
Answer: TRUE
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

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29) Spending on social network advertising in the United States is expected to generate more
than 50% of total digital ad spending.
Answer: FALSE
Difficulty: Easy
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

30) Algorithms are one of the most important technologies used by social networks.
Answer: TRUE
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

31) Briefly describe the evolution of social networks from their earliest appearance.
Answer: The earliest social networks, in the mid-1980s and 1990s were community bulletin
boards, or discussion groups, like The Well. In the early 2000s, technology changed, bringing in
blogging and photo sharing features. As the Internet user population expanded, more and more
socially oriented sites appeared, including Facebook, allowing users to share content directly
with each other. More recently, in the late 2000s and early 2010s, as the Internet became
available to browse (and post to) via mobile devices, more and more photo and video sharing
social networks have emerged, such as Pinterest and Instagram. A newer crop of social networks
launched since 2008 (i.e., Snapchat and WhatsApp) focus on messaging. TikTok, the newest
significant social network, focuses on short-form video sharing.
Difficulty: Moderate
AACSB: Analytical thinking; Written and oral communication
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

32) Name four shared characteristics of social networks.

Answer: Social networks involve (1) a group of people, (2) shared social interactions, (3)
common ties among members, and (4) people who share an area for some period of time.
Difficulty: Moderate
AACSB: Analytical thinking; Written and oral communication
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

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33) What is an algorithm and how are they relevant to social networks?
Answer: Algorithms are one of the most important technologies used by social networks.
Algorithms are sets of step-by-step instructions, similar to a recipe, for producing a desired
output from required inputs. Computer algorithms are computer programs that carry out step-by-
step instructions to produce desired outputs. The problem that social networks such as Facebook
need to solve is how to select content (actions of their friends and news stories) for display on
users' pages that they will find interesting, and likely click on. Also, social networks need to
prevent information that is irrelevant from appearing on user pages. Social networks typically
use algorithms for this purpose. For example, in 2010 Facebook patented an algorithm to
produce what it calls relationship-based content personalized for members of a social network. .
Difficulty: Moderate
AACSB: Analytical thinking; Written and oral communication
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

34) What business models do social networks primarily use?

Answer: The most popular general social networks have adopted an advertising model, and
make money from ads displayed to users. There are also for profit and non-profit networks that
stay afloat from user donations, member dues, premium services, or through sponsorship
financing.
Difficulty: Moderate
AACSB: Analytical thinking; Written and oral communication
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

35) Discuss the impact social networks have had on how businesses operate, communicate, and
serve their customers.
Answer: Social networks have had an important impact on how businesses operate,
communicate, and serve their customers. A recent survey of Fortune 500 firms found that these
firms are increasing their use of social media. Almost all Fortune 500 firms (98%) used
LinkedIn, 91% used Twitter, 89% used Facebook, and 63% used Instagram. The most visible
business firm use of social networks is as a marketing and branding tool. A less visible
marketing use of networks is as a powerful listening tool which has strengthened the role of
customers and customer feedback systems. Social networks are where corporate brands and
reputations are formed, and firms today take very seriously the topic of "online reputation," as
evidenced by social network posts, commentary, chat sessions, and Likes. In this sense, social
network sites have become an extension of corporate customer relationship management systems
and extend existing market research programs. Beyond branding, social networks are being used
as advertising platforms to contact targeted audiences.
Difficulty: Difficult
AACSB: Analytical thinking; Written and oral communication
Learning Objective: 11.1: Describe the different types of social networks and online
communities and their business models.

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36) Which of the following statements about auctions is not true?
A) Most of the listings on eBay today use auction pricing.
B) The popularity of online auctions has significantly declined.
C) Online auctions were among the most successful early business models in retail and B2B e-
commerce.
D) The marketplace for online auctions is highly concentrated.
Answer: A
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

37) All of the following are benefits of auctions except:

A) more efficient price discovery.
B) lower transaction costs.
C) decreased price transparency.
D) increased market efficiency.
Answer: C
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

38) ________ is the market leader in C2C auctions.

A) Amazon
B) eBay
C) Walmart
D) eBid
Answer: B
Difficulty: Easy
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

39) Which of the following is not a risk or cost of Internet auctions?

A) delayed consumption costs
B) equipment costs
C) price transparency
D) trust risks
Answer: C
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

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40) The fact that participating in an Internet auction means that you will need to purchase a
computer, learn to use it, and pay for Internet access, is an example of ________ costs.
A) equipment
B) fulfillment
C) delayed consumption
D) monitoring
Answer: A
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

41) All of the following are solutions to the problem of high monitoring costs except:
A) seller rating systems.
B) watch lists.
C) proxy bidding.
D) fixed pricing.
Answer: A
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

42) Which of the following types of auctions "shields the brand" of the seller?
A) English auction
B) reverse auction
C) bidding fee auction
D) penny auction
Answer: B
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

43) Which of the following allows the consumer to enter a maximum price and the auction
software automatically places incremental bids, up to that maximum price, as their original bid is
surpassed?
A) watch lists
B) proxy bidding
C) sealed bidding
D) price matching
Answer: B
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

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44) ________ occurs when sellers agree informally or formally to set floor prices below which
they will not sell on auction items.
A) Discriminatory pricing
B) Price matching
C) Bid rigging
D) Distress pricing
Answer: B
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

45) Quibids is an example of which of the following types of auction company?

A) English auction
B) reverse auction
C) penny auction
D) "Name Your Own Price" auction
Answer: C
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

46) All of the following types of auctions involve single units except:
A) an English auction.
B) a bidding fee auction.
C) a reverse auction.
D) a penny auction.
Answer: B
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

47) A(n) ________, in which the highest bidder wins, is the most common form of auction.
A) bidding fee auction
B) penny auction
C) English auction
D) reverse auction
Answer: C
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

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48) Which of the following types of auctions was pioneered by Priceline in the B2C area?
A) English auction
B) bidding fee auction
C) penny auction
D) reverse auction
Answer: D
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

49) Which of the following is not one of the top factors a business should consider when
planning an online auction?
A) type of product
B) type of auction
C) location of auction
D) bid increments
Answer: C
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

50) The profit a seller makes at auction is a function of all of the following except:
A) initial pricing.
B) auction length.
C) the number of units for auction.
D) watch lists.
Answer: D
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

51) ________ is the tendency to gravitate toward, and bid for, auction listings with one or more
existing bids.
A) Group buying
B) Winner's regret
C) Herd behavior
D) Bid rigging
Answer: C
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

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52) Which of the following involves the feeling after winning an auction that you paid too much
for an item?
A) herd behavior
B) winner's regret
C) seller's lament
D) loser's lament
Answer: B
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

53) Which of the following involves e-mailing another seller's bidders and offering the same
product for less?
A) transaction interception
B) bid siphoning
C) shill bidding
D) persistent bidding
Answer: B
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

54) Threatening negative feedback in return for a benefit is an example of:

A) feedback extortion.
B) offensive shill feedback.
C) defensive shill feedback.
D) sending spam.
Answer: A
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

55) One partial solution to high monitoring costs is ________ pricing.

A) fixed
B) dynamic
C) allocated
D) distress
Answer: A
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

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56) The term ________ refer(s) to the advantages conferred as an auction site becomes larger in
terms of visitors and products for sale.
A) siphoning
B) herd behavior
C) network effects
D) channel expansion
Answer: C
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

57) A ________ permits the consumer to monitor specific auctions of interest, requiring the
consumer to pay close attention only in the last few minutes of bidding.
A) bidding fee auction
B) channel manager
C) watch list
D) rating system
Answer: C
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

58) The time spent watching and reviewing auction bids is a part of ________ costs.
A) pricing
B) monitoring
C) delayed consumption
D) fulfillment
Answer: B
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

59) E-mailing buyers to warn them away from a seller is a type of auction fraud known as:
A) transaction interference.
B) bid siphoning.
C) bid rigging.
D) shill bidding.
Answer: A
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

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60) ________ refers to the feeling of having been too cheap in bidding and failing to win an
auction.
A) Winner's lament
B) Winner's regret
C) Loser's lament
D) Loser's regret
Answer: C
Difficulty: Easy
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

61) ________ refers to the use of secondary user IDs or bidders who have no actual intention to
buy to artificially raise the price of an item.
A) Bid manipulation
B) Shill feedback
C) Shill bidding
D) Bid rigging
Answer: C
Difficulty: Difficult
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

62) In C2C auctions, the auction company is an intermediary market maker.

Answer: TRUE
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

63) Penny auctions don't require money to bid.

Answer: FALSE
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

64) A reverse auction utilizes fixed pricing.

Answer: TRUE
Difficulty: Difficult
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

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65) Auctions constitute a significant part of B2B e-commerce.
Answer: TRUE
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

66) Keeping bid increments low decreases the number of bidders and lowers the frequency of
their bids.
Answer: FALSE
Difficulty: Easy
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

67) Closed bidding offers the advantage of herd effects.

Answer: FALSE
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

68) Auction prices are often higher than prices in fixed priced markets.
Answer: TRUE
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

69) Consumers in auctions are driven solely by value maximization.

Answer: FALSE
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

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70) Briefly describe the primary types of auctions found on the Internet and how they function.
Answer: The primary types of auctions found on the Internet are English, reverse, and penny
(bidding fee) auctions.
In an English auction, a single item is up for sale from a single seller. There is a time limit when
the auction ends, a reserve price below which the seller will not sell (usually secret), and a
minimum incremental bid set. Multiple buyers bid against one another until the auction time
limit is reached. The highest bidder wins the item, as long as the high bid has met or exceeded
the reserve price set by the seller. English auctions are considered to be seller-biased because
multiple buyers compete against one another–usually anonymously.
In a reverse auction (also known as a "Name Your Own Price" auction when pioneered by
Priceline), buyers specify the price they are willing to pay for an item and multiple providers bid
for their business. Prices do not descend and are fixed. The initial offer is a commitment to
purchase at that price. Today, reverse auctions are primarily found in the B2B arena.
In a penny auction (also known as bidding fee auction), you typically must pay the penny auction
company for bids ahead of time, typically 50 cents to $1 dollar, usually in packs costing $25-
$50. Once you have purchased the bids, you can use them to bid on items listed by the penny
auction (unlike traditional auctions, items are owned by the auction company, not third parties).
Items typically start at or near $0 and each bid raises the price by a fixed amount, usually just a
penny. Auctions are timed, and when the time runs out, the last and highest bidder wins the item.
Although the price of the item itself may not be that high, the successful bidder will typically
have spent much more than that price. Unlike a traditional auction, it costs money to bid and that
money is gone even if the bidder does not win the auction. The bidder's cumulative cost of
bidding must be added to the final price of a successful bid to determine the true cost of the item.
Bidders may find that they spend far more than they intended.
Difficulty: Moderate
AACSB: Application of knowledge; Written and oral communication
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

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71) What are the benefits of online auctions for sellers and buyers?
Answer: The general benefits of auctions to sellers and buyers are: liquidity, price discovery,
price transparency, market efficiency, lowered transaction costs, consumer aggregation, and
network effects.
Liquidity: Sellers can find willing buyers, and buyers can find willing sellers. Sellers and buyers
can be located anywhere around the globe. Just as important, buyers and sellers can find a global
market for rare items that would not have existed before the Internet.
Price discovery: Buyers and sellers can quickly and efficiently develop prices for items that are
difficult to assess, when the price depends on demand and supply, and when the product is rare.
Price transparency: Public online auctions allow everyone to see the asking and bidding prices
for items.
Market efficiency: Auctions can, and often do, lead to reduced prices, and hence reduced profits
for merchants, leading to an increase in consumer welfare–one measure of market efficiency.
Lower transaction costs: Online auctions can lower the cost of selling and purchasing products,
benefiting both merchants and consumers. Like other Internet markets, such as retail markets,
online auctions have very low (but not zero) transaction costs.
Consumer aggregation: Sellers benefit from large online auctions' ability to aggregate a large
number of consumers who are motivated to purchase something in one marketspace.
Network effects: The larger an online auction becomes in terms of visitors and products for sale,
the more valuable it becomes as a marketplace for everyone by providing liquidity and several
other benefits listed previously, such as lower transaction costs, higher efficiency, and better
price transparency.
Difficulty: Moderate
AACSB: Analytical thinking; Written and oral communication
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

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72) What are the costs and risks for buyers at an auction, and how have auction sites sought to
reduce these risks?
Answer: The costs for buyers when they participate in an auction are delayed consumption,
monitoring costs, equipment costs, trust risks, and fulfillment costs. Delayed consumption occurs
because auctions can go on for days and the product must then be shipped to the buyer. Buyers
will typically want to pay less for an item for which they cannot receive immediate gratification.
Buyers must also spend time monitoring the bidding, returning to the auction frequently to see if
they need to raise their bid. They must also purchase, or have already purchased, computer
systems and Internet service, and learned how to operate these systems. Since buyers must pay
for packing, shipping, and insurance, they will factor these fulfillment costs into their bid price.
Consumers also face an increased risk of experiencing a loss because online auctions are a major
source of Internet fraud. Auction companies have sought to reduce these trust risks through
various methods including rating systems, watch lists, and proxy bidding. Rating systems are
designed so that previous customers can evaluate sellers based upon their experience with them.
These evaluations are posted for other buyers to see. Watch lists allow buyers to monitor specific
auctions as they proceed over several days and only pay close attention in the last few minutes of
bidding. In proxy bidding systems, buyers can enter the maximum price they are willing to pay,
and the auction software will automatically place incremental bids as their original bid is
surpassed. In addition, one partial solution to high monitoring costs is, ironically, fixed pricing.
At eBay, consumers can reduce the cost of monitoring and waiting for auctions to end by simply
clicking on the "Buy It Now!" button and paying a premium price.
Difficulty: Moderate
AACSB: Analytical thinking; Written and oral communication
Learning Objective: 11.2: Describe the major types of auctions, their benefits and costs, how
they operate, when to use them, and the potential for auction abuse and fraud.

73) Which of the following purchased Yahoo and AOL as part of a strategy aimed entering the
digital content and advertising industry?
A) AT&T
B) Microsoft
C) AOL
D) Verizon Media
Answer: D
Difficulty: Easy
AACSB: Application of knowledge
Learning Objective: 11.3: Describe the major types of Internet portals and their business models.

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74) Which of the following is not a true statement about portals?
A) Portals today seek to be a sticky destination.
B) Yahoo has become one of the largest sources of online news.
C) Current consumer behavior trends advantage special-purpose, vertical market portals.
D) The limited time budget of consumers works to the advantage of vertical market portals.
Answer: D
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.3: Describe the major types of Internet portals and their business models.

75) Which of the following is not one of the defining functions of a portal?
A) commerce
B) content
C) auctions
D) navigation of the Web
Answer: C
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.3: Describe the major types of Internet portals and their business models.

76) Which of the following statements best describes the potential impact of network effects with
respect to portals?
A) Specialized vertical market portals attract only a small percentage of the audience, while a
few large megaportals garner most of the market.
B) The value of the portal to advertisers and consumers increases geometrically as reach
increases.
C) The greater the amount of content provided by a portal, the greater its value to the
community.
D) The greater number of portals available, the greater the potential audience for each.
Answer: B
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.3: Describe the major types of Internet portals and their business models.

77) Which of the following did not begin as a search engine?

A) Yahoo
B) Facebook
C) AOL
D) MSN
Answer: B
Difficulty: Easy
AACSB: Application of knowledge
Learning Objective: 11.3: Describe the major types of Internet portals and their business models.

78) [Link] is an example of a:

A) general purpose portal.
B) vertical market portal based on affinity group.

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C) vertical market portal based on focused content.
D) focused content portal.
Answer: D
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.3: Describe the major types of Internet portals and their business models.

79) Which of the following is not one of the typical portal revenue sources?
A) commissions on sales
B) subscription fees
C) tenancy deals
D) referral fees
Answer: D
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.3: Describe the major types of Internet portals and their business models.

80) The original portals in the early days of e-commerce were search engines.
Answer: TRUE
Difficulty: Easy
AACSB: Application of knowledge
Learning Objective: 11.3: Describe the major types of Internet portals and their business models.

81) The value of portals to advertisers and content owners is primarily a function of the size of
the audience the portal reaches, and the length of time visitors stay on the site.
Answer: TRUE
Difficulty: Easy
AACSB: Application of knowledge
Learning Objective: 11.3: Describe the major types of Internet portals and their business models.

82) Vertical content portals and affinity group portals tend to be more well-known brands than
general-purpose portals.
Answer: FALSE
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.3: Describe the major types of Internet portals and their business models.

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83) Portals are not immune to network effects.
Answer: FALSE
Difficulty: Moderate
AACSB: Application of knowledge
Learning Objective: 11.3: Describe the major types of Internet portals and their business models.

84) Identify and describe the main types of portals.

Answer: There are two primary types of portals: general purpose and vertical market. General
purpose portals attempt to attract a very large general audience and then retain the audience on-
site by providing in-depth vertical content channels. Vertical market portals (sometimes also
referred to as destination sites or vortals) attempt to attract highly focused, loyal audiences with a
deep interest either in community or specialized content – from sports to the weather. In addition
to their focused content, vertical market portals have recently begun adding many of the features
found in general purpose portals.
Difficulty: Moderate
AACSB: Analytical thinking; Written and oral communication
Learning Objective: 11.3: Describe the major types of Internet portals and their business models.

85) What business models do portals use?

Answer: Portals receive income from several different sources. The revenue base of portals is
changing and dynamic, with some of the largest sources of revenue declining. Typical revenue
sources include general advertising, tenancy deals, commissions on sales, subscription fees, and
fees from applications and games. The business strategies of both general-purpose and vertical
portals have changed greatly because of the rapid growth in search engine advertising and
intelligent ad placement networks such as Google's AdSense. General portals such as AOL and
Yahoo did not have well-developed search engines, and hence did not grow as fast as Google,
which developed a powerful search engine. On the other hand, general portals have content,
which Google did not originally have, although it has since added content by purchasing
YouTube and adding Google sites devoted to news, financial information, images, and maps.
General portals are attempting to provide more premium content focused on subcommunities of
their portal audience.
Advertisers on portals are especially interested in focused, revenue-producing premium content
available on portals because it attracts a more committed audience. There is a direct relationship
between the revenue derived from a customer and the focus of the customer segment. The
survival strategy for general purpose portals in the future is therefore to develop deep, rich,
vertical content to reach customers at the site. The strategy for smaller vertical market portals is
to put together a collection of vertical portals to form a vertical portal network. The strategy for
search engines such as Google is to obtain more content to attract users for a long time and
expose them to more ads.
Difficulty: Moderate
AACSB: Analytical thinking; Written and oral communication
Learning Objective: 11.3: Describe the major types of Internet portals and their business models.

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