Digital Auctions: Mapping the IT-Paved Road towards Market Efficiency

IT enables a more smooth performance of entire business exchanges. Hence it has the potential to alter market efficiency. Our paper addresses the question whether market efficiency is realized differently in a digital market setting as opposed to analog auctions. In addition, the paper will explore whether it is more likely that market efficiency will improve in the digital auction setting than on the analog auction market. In addition to assessing these two questions, the paper addresses distribution of equity, allocative efficiency, perfect competition, second best theory, and market failures in the light of the first, rather turbulent round of online auction experiences. The paper proposes the controversial statement that the economic mechanisms, rationality and behavior at the Internet auctions really have the potential to increase market efficiency on the majority of the market efficiency components. The study suggests that the auctions are going to change the level and content of the existing market efficiency substantially.