List and briefly explain three of the benefits of auction markets.

The benefits of auction markets are:

• Liquidity: Sellers and buyers are connected in a global marketplace.

• Price discovery: Even difficult-to-price items can be competitively priced based on supply and demand.

• Price transparency: Everyone in the world can see the asking and bidding prices for items, although prices can vary from the auction site to auction site.

• Market efficiency: Consumers are offered access to a selection of goods that would be impossible to access physically, and consumer welfare is often increased due to reduced prices.

• Lower transaction costs: Merchants and consumers alike are benefited by the reduced costs of selling and purchasing goods compared to the physical marketplace.

• Consumer aggregation: A large number of consumers who are motivated to buy are amassed in one marketplace—a great convenience to the seller.

• Network effects: The larger an auction site becomes, in both the numbers of users and products, the greater all of the above benefits become and therefore the more valuable a marketplace it becomes.

• Market maker benefits: Auction sites have no inventory carrying costs or shipping costs, making them perhaps the ideal online business in that their main function is the transfer of information.