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AN OBJECT-BASED ANALYSE AND MODEL OF ON-LINE AUCTIONS lssarn Darawish A thesis subrnitted in conformity with the requirements for the Degree of Master of Applied Science. Graduate Department of Mechanical
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AN OBJECT-BASED ANALYSE AND MODEL OF ON-LINE AUCTIONS lssarn Darawish A thesis subrnitted in conformity with the requirements for the Degree of Master of Applied Science. Graduate Department of Mechanical and Industrial Engineering, University of Toronto O Copyright by lssam Darawish (1 999) National Library 1*1 of Canada Acquisitions and Bibliographie Sem-ces Bibliothèque nationale du Canada Acquisitions et senrices bibliographiques 395 Wellington Street 395, Wellington OtîawaON K1AON4 Ottawa ON KlA ON4 CaMQ CaMda The author has granted a nonexclusive licence ailowing the National Library of Canada to reproduce, loan, distribute or sell copies of this thesis in microform, paper or electronic formats. The author retains ownership of the copyright in this thesis. Neither the thesis nor substantid extracts from it may be printed or otherwise reproduced without the author's permission. L'auteur a accordé une licence non exclusive permettant à la Bibliothèque nationale du Canada de reproduire, prêter, distribuer ou vendre des copies de cette thèse sous la forme de microfiche/film, de reproduction sur papier ou sur format électronique. L'auteur conserve la propriété du droit d'auteur qui protège cette thèse. Ni la thèse ni des extraits substantiels de celle-ci ne doivent être imprimés ou autrement reproduits sans son autorisation. An Object-Based Analysis and Model of On-line Auctions Master of Applied Science, 1999 lssam Darawish Department of Mechanical and Industrial Engineering University of Toronto Abstract On-fine auctions represent a unique form of e-commerce that employs an arbitrated pricing method for the sale of goods. The challenges of designing such systems motivated the objective of this thesis: to create an on-line auction model that can be extended to rneet different trading requirements. The thesis presents an Object Oriented Analysis of the on-line auction domain in terms of Information, State and Process. The information analysis identifies pertinent objects frorn which an Information Model of on-line auctions is developed. The state analysis abstracts the behavior of these objects by defining their relevant States, events and transitions. From this analysis, an Object Communication Model portraying object hierarchy and control exhibited by on-line auctions is created. Finally, the process analysis identifies the processing units associated with the actions of each object. Using this analysis, an Object Access Model that provides a global view of processing in on-line auctions is constructed. Executive Summary On-line auctions represent a unique form of ecommerce that uses an arbitrated pricing method for the sale of goods or services. The growth of on-line auctions has been phenomenal over the last four years and is expected to continue expanding into a great variety of markets. Perhaps the most striking characteristic of on-line auctions has been their development as virtual trading communities. On-line auctions have independently evolved with their own type of products and 'brand'. Different on-line auctions feature different types of traders and a variety of trading rules, settlernent terms, commission structures and other electronic market reqoirements. These observations motivated the research for this thesis: the creation of an online auction mode1 that may be easily etaborated or extended to meet the needs of various on-line auction communities. One method of doing this is through an Object Oriented approach in which reusable components or objects are used to abstract the pertinent concepts of the domain being studied. Such an Object Oriented Analysis is presented in this thesis by breaking down the on-line auction dornain into three components: Information, State and Process. The information analysis is used to identify on-line auction objects and their attributes, which enables one to create an Information Model of on-line auctions. The state analysis identifies the behavior of objects in the on-line auction by defining their relevant States, events and transitions. Hence, allowing one to eventually create an Object Communication Model that demonstrates the type of object hierarchy and control exhibited in an on-line auction. Finally, the process analysis demonstrates the variety of procedures and rules required using Data Flow Diagrams. This subsequently permits modeling using an Object Access Model, which provides one with a global view of processes in on-line auctions. The thesis goes on to describing the manner in which the results of the analysis and modeling may be implernented. This is followed by a description of the benefits of Object models for on-line auctions in terms of their flexibility, independence, portability and reusability. Finally, some of the limitations inherent in using an Object Oriented approach are explained. In short, the contribution made by this thesis has been to use an established Object Oriented methodology in the analysis and modeling of the relatively new domain or field of e-commerce. more specifically, on-line auctions. Such a contribution of creating component-based commerce models becomes very useful as organizations continue to integrate e-commerce practices into their businesses. Ultimately, organizations could develop e-commerce resource libraries that are composed of reusable and extendible components, thus enabling a highly flexible and dynamic electronic market mechanism. Acknowledgements I would like to use this section to thank my supervisor Professor Joseph C. Paradi for giving me the opportunity to work on this project. It has been an excellent experience. which has allowed me to learn and expand my horizons in a great variety of areas. This thesis would not have been completed without Professor Paradi's effective guidance, patience and, above ail, his inspiring attitude. In addition, I thank Mr. Tirn Lloyd of Delos Inc. whose time and efforts were greatly appreciated. I would like to express my gratitude to both my parents whose support was always unwavering and reliable. I am also indebted to Audrey Yakimov for her loyal companionship and valuable advice. Finally, I extend my acknowledgements to al1 my colleagues at the CMTE, namely: Allison, Burcu, Fai, Heather, John, Kerri, Mike, Ozren, Paul, Ramez, Rinku, Sandra, Soheila, Tereneh and Zijiang. They have al1 been extremely helpful and a pleasure to work with. Table of Contents Abst ract Executive Summary Acknowledgements Table Of Contents List of Tables List of Figures Chapter 1 : lntroduction 1.1 Pricing in Commerce Systems 1.2 lntroduction to On-line Auctions Benefits of On-line Auctions Economic Effects of On-fine Auctions Limitations of On-line Auctions Types of On-line Auction Markets 1.3 Thesis Objectives 1.4 Organization of Thesis Chapter 2: The On-line Auction System & User Requirements 2.1 Introduction 2.2 On-line Auction System Architecture lnternet Infrastructure User Interface Database Market Model 2.3 User Requirements Analysis lnternet Infrastructure User Interface Database Market Model 2.4 Summary Chapter 3: Information Analysis 3.1 Introduction 3.2 Overview of Object Oriented Analysis 3.3 Defining Objects 3.3.1 Lot Trader Order Auctioneer Commission lncrement Trade 3.4 Summary Chapter 4: State Analysis 4.1 Introduction 4.2 Defining Lifecycles Lot Lifecycle Trader Lifecycle Order Lifecycle Auctioneer Lifecycle Commission Lifecycle lncrement Lifecycle Trade Lifecycle 4.3 Summary Chapter 5: Process Analysis 5.1 Introduction 5.2 Defining Processes Lot Process Trader Process Order Process Auctioneer Process Commission Process lncrement Process Trade Process 5.3 Summary Chapter 6: Object Model of On-line Auctions 6.1 lntr~duction 6.2 Object Oriented Design Models Information Model Object Communication Model Object Access Model 6.3 Advantages of an Object Model 6.4 Limitations of an Object Model 6.5 l mplementation 6.6 Summary vii Chapter 7: Future Work and Conclusions 7.1 Recommendations for Future Work 7.2 Component-based Commerce 7.3 Conclusions References Glossary of Terms viii List of Tables Table 5.1 Rules for Auction Start Table 5.2 Rules for Placing Orders Table 5.3 Rules for Publishing Orders Table 5.4 Rules for Number of Orders Table 5.5 Rules for Computing the Price Table 5.6 Rules for the Formulation of Trades Table 5.7 Rules for Determining the Winner of the Auction List of Figures Fig. 3.1 Representation of an Object F ig. 3.2 The Lot Object Fig. 3.3 The Trader Object Fig. 3.4 The Order Object Fig. 3.5 The Auctioneer Object Fig. 3.6 Commission Object Fig. 3.7 The lncrement Object Fig. 3.8 The Trade Object Fig. 4.1 Example of a typical Lifecycle Diagram Fig. 4.2 Lifecycle of the Lot Object Fig. 4.3 Lifecycle of the Trader Object Fig. 4.4 Lifecycle of Order Object Fig. 4.5 Lifecycle of the Auctioneer Object Fig. 4.6 Lifecycle of the Commission Object Fig. 4.7 Lifecycle Diagram of the lncrement Object Fig. 4.8 Lifecycle of the Trade Object Fig. 5.1 Notation for Data Flow Diagrarns Fig. 5.2 DFD for the Lot Object Fig. 5.3 DFD for the Trader Object Fig. 5.4 DFD for the Order Object Fig. 5.5 DFD for the Auctioneer Object Fig. 5.6 DFD for the Commission Object Fig. 5.7 DFD for the lncrement Object Fig. 5.8 DFD for the Trade Object Fig. 6.1 Information Model of an On-line Auction Fig. 6.2 Object Communication Model for an On-line Auction Fig. 6.3 Object Access Model for an On-iine Auction Fig. 6.4 Pseudo code for the Lot Object Fig. 6.5 Pseudo code for the AUCTIONEER.3 process Chapter 1 : Introduction and Thesis Objectives 1.1 Pricing in Commerce Systerns In any commercial market system, whether physical or electronic, a trade transaction may be generally divided into three typical stages: Information. Pricing and Settlement [Il. The information stage represents the process of gathering information with regards to the product or service that one is interested in buying or selling. The pricing stage of a trade transaction constitutes the mechanism or the rules of interaction that aflow the parties involved to reach a consensus on the price of the item being sold (11. Traditionaily. there are three methods that have been ernployed in the pricing stage. These are: i... I 1. Fixed Price - In this method the seller posts the price of the item and the buyer has no power to change it. The buyer simply rnakes the decision to buy or not to buy. This method is the one that consumers are mostly aware of in western countries [2]. Private Treaty - In this scheme, the price is subject to negotiation and the buyer and seller are expected to negotiate. The price may initially be specified or may be suggested by either party involved. In any case. adjustments are made until a compromise is agreed upon. The private treaty method is very common in many Third World countries at the retail level. In the West, this method is mainly used at pre-retail stages of the supply chain [2]. iii. Cornpetitive Bidding - This method of pricing entails the use of an auction for the sale of a particular item or service [2]. An auction may be defined as a market system that allocates lots (items for sale) by competition of traders adhering to a prescribed set of rutes [2]. The auction may involve buyers who are competing amongst each other by continually raising the price. Conversely. an auction may also have sellers who are competing with one another by posting lower prices. This type of pricing method is used throughout the world. subject to variations in rules and procedures from one market to the other. In the case of e-commerce systems, on-line traders can use any one of these three pricing methods. The third stage or seulement refers to the process by which the seller and buyer agree upon the method of payment and shipment of the item that is sold [Il. This thesis will focus on the use of the cornpetitive bidding method at the prîcing stage in what has become computer based lnternet accessed on-line auctions. The next sections will provide the reader an overview of on-line auctions. 1.2 Introduction to On-line Auctions E-Commerce may be defined as commerce that is conducted by sharing information, using a variety of electronic technologies. among buyers and sellers located over a wide geographic area [3]. On-line auctions may be considered a subset of e-commerce that uses auctioning methods at the pricing stage. In this thesis, the focus will be on lnternet auctions held over a pre-specified time interval. Such on-line auctions are usually conducted from a Web site connected to the World Wide Web (although on-line auctions may be held on proprietary networks or Intranets). In addition, the term on-line auction* is understood to encompass al1 the different types of auction mechanisms. In other words. one does not distinguish between an English, Dutch or Japanese auction conducted on-line. The rise of on-line auctions as an e-commerce lnternet phenomenon has ken quite remarkable over the last nurnber of years. Currently there are hundreds of sites that offer on-line auctions on the Web. The largest of them have only been in operation for three or four years, most for less than a year, and some have since become publicly traded companies with market capitalization in the billions of dollars. Most prominent amongst these companies are e-bay [4], Onsale 151, AuctionUniverse 161, ubid [7] and Bid.com International [8]. The on-line auction has become a real factor in the e-business world- Even such traditional 'fixed-price' web sites as Amazon.com 19) and Cybershopper [l O] have recently implemented their own on-iine auctions. Further studies, such as the Forrester Research report, predict the on-line auction industry to reach over $50 billion American dollars by year 2002 (1 11. This research also predicts that the on-line auction percentage of e-commerce will rise from 12% in 1998 to 29% by 2002 [Il l Benefits of On-line Auctions The questions that come to mind, at this point, are what are the attractions or advantages behind on-line auctions over other modes of selling goods? What are the reasons that have propelled these Web sites to such popularity on the Internet? Naturally the many buyers and sellers of on-line auctions have their own reasons for conducting this type of e-commerce. The main reasons for using on-line auctions are summarized as: i. lnteractivity - on-line auctions, unlike fixed price e-commerce, offer a unique type of 'shopping experience'. The nature of the on-line auction Web sites offer e-commerce cornbined with the interactive features of the Internet. These interactive features include the ability to buy and seil products, chat with others etc. In a sense, the on-line auction may be viewed in many ways as an on-line e-commerce 'game' that includes the excitement of winning and shopping at the same time.. II.... III. Bargaining hunting - on-line auctions may be regarda as a very effective way to find a bargain. Sellers can simply post products to an essentially worldwide audience, eam extra money, clear excess inventories etc. In other words, the on-line auction provides an inexpensive and efficient channel to display and seil a product [12]. Frorn the buyets point of view. the prices achieved in on-line auctions are often very much discounted from regular prices. This channel allows traders a greater chance of obtaining a bargain than in the case of the fixed price system (121. Product variety - on-line auctions give buyers the ability to have access to a variety of goods that rnay, otherwise. be essentially impossible to reach. The breadth of goods may include collectibles, used computers, real estate. cars and so on. What is interesting, is that one observes that many of the items that have not found success though fixed price e- Commerce have enjoyed much more success with auction pricing e- Commerce. Part of this reason may well lie behind the parties' inability to put a fair price on such items as a Beanie doll, an antique or an autographed baseball. In any case, on-line auctions have also enjoyed success with traditional' products sold by fixed price e-commerce such as books, hardware and software. iv. Community - Another feature that is quite different form fixed price e- Commerce is the appearance of virtual 'trading communities' whose members have become quite fiercely loyal to them. Although there are many similarities between on-line auctions, each has developed their own set of market rules and mechanisms that are tailored towards the products and services they feature. The development of these on-line auction communities goes hand in hand with the virtual community structure that has been adopted by lnternet users especially over the last few years. Such structures include discussion groups, mailing lists and chat roorns tailored towards specific types of products and traders- v. Charity - this is a relatively new, yet more and more frequent motivation. behind on-line auctions [12]. Many of the on-line auction Web sites are conducting Chafity Auctions to raise money for various global causes Economic Effects of On-line Auctions As rnentioned, on-line auctions represent a major portion of e-commerce activities and are forecasted to experience significant growth. It is thus imperative that there is a clear understanding of the econornic impacts that this form of commerce may have. Due to the reiatively recent introduction of on-line auctions, it is hard to predict what their impact may be- However, a number of possible effects are: i. Profitability - on-line auctions give traders, both individuals and companies, access to a relatively inexpensive channel that allows them to seil their goods in an efficient manner requiring little effort besides entering the appropriate information. This could represent a significant reduction in the costs previously incurred in selling these products [Il]. Moreover, a greater range of potential buyers could be attracted due to the global nature of the on-line auction. This translates into extra cash and increases in revenues... II. Distribution channels - on-tine auctions could represent a new distribution channel for a variety of products and services. This channel could have the effect of supporting other channels or competing with them. For example, certain distribution channels may remain intact while the on-line auction is used solely as an efficient method for specialized sales such as last minute offerings or overstocked items. On the other hand, on-line auctions may act as substitutes to certain distribution channels and compietely or partially replace them. iii. Pricing - on-line auctions could place pricing pressures on the same or similar products being sold using other distribution channels The lower prices and deals that can be potentially created by on-line auctions can lead to price erosion in the overall market. iv. Specialized markets - on-line auctions may support markets with distinct product segmentations. The reason for this is that this type of commerce can enable sellers to approach a global buying presence that has very specific interests. As opposed to other channels, on-line auctions have the potential to generate high volume sales even for a very segmented product [12]. On-line auctions can thus become the basis for many new specialized markets [13] Limitations of On-line Auctions ln addition to their benefits and effects, it is important to look at some of the limitations of on-line auction markets. Perhaps the most prominent of these [imitations are: i. Product Access - On-line auctions do not usually allow one to physically see the lots that are being placed for sale. Instead, many on-line auctions provide photographs and other multi-media representations of these lots. However, as in the case of real estate or certain collectible items, the buyer might require a more through examination in order to place a high bid or at least, retying on a trusted third Party. ii. Fraud - On-fine auction
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