By Brian Roe and Tim Wyszynski, Ohio State University
The performance of brick and mortar institutions relative to Internet alternatives is of increasing interest for agriculture. With Internet penetration rising steadily among US farm households (59% in 2009 vs. 29% in 1999), online markets hold great promise for increasing market efficiency, particularly for items where local markets are thin and search costs are high. However, online markets must overcome issues of trust (Does the item meet its description? Will the seller actually send it?). Furthermore, Internet markets are newer and need to attract enough buyers and sellers away from traditional markets in order to have a liquid market. Once these barriers are overcome, questions still remain about whether online prices are comparable to prices in traditional markets. For example, Ohio State research found that used tractor prices on eBay were 30% lower than similarly described tractors sold in traditional auctions.
One place where Internet sales have developed a foothold is in the club pig market. In this article we explore the tradeoffs between Internet and traditional club pig auctions from a buyer’s point of view using data collected from three Midwestern farms that sold pigs through both traditional auctions and through a popular online auction site specializing in club pig sales (www.showpig.com). The sales took place from late February through early July this year, and we tracked 159 pigs sold through traditional auctions and 146 pigs sold online.
The Two Auctions
The traditional sales work like most auctions we are familiar with: open outcry auctions with pigs in the ring and ample opportunity to view the pigs before the sale. The Internet auctions rely upon pictures posted on the auction website along with a description written by the seller. Often, buyers can stop by the farm prior to the auction to view pigs offered, but not all potential buyers do or can. To place a bid you go to the auction website, fill in the online form to become registered, identify the pig you are interested in and then, during the auction, enter a maximum amount you’d be willing to pay for the pig.
Once the auction begins (usually around 8 am on sale day), all initial bids are scanned by the online auction software and the website displays the highest bidder’s ID and what the sale price would be if the auction ended immediately. All bidders then have an opportunity to increase their maximum bid prior to the auction’s close (usually around 8 pm, with a slightly different closing time for each pig). Once the auction’s closing time has passed and there have been 5 minutes without any additional bids (no sniping like on eBay), the auction is over.
If you are the highest bidder, you will pay the amount bid by the second highest bidder plus an increment (usually $25). In addition, a 10% buyer’s fee is tacked onto this winning price where half of this fee is returned to the seller to help offset coordination costs for the eventual exchange of the pig between buyer and seller. Buyers can pay via credit card or Paypal via the website or can overnight express-mail a certified check to the auction company. Buyers are responsible for transporting animals, though sellers work with the buyer to locate a good meeting point – usually at an upcoming show or traditional sale somewhere between buyer and seller.
Comparing Prices Buyers Paid
So, how do prices compare between the Internet and traditional auctions for the three sellers we analyzed? Well, first we wanted to make sure we were comparing apples to apples. So we collected data about each pig’s age, breed, gender, and sire as well as information about the seller and the date of sale, and we used a statistical approach to figure out how each factor affected the auction price. Then we pretended like each pig sold twice: once online (including the 10% buyer’s fee) and once in a traditional auction.
In the end the median pig would have cost about $10 more if purchased online than if it were purchased in a traditional auction – that’s 1.6% more given the median pig sold for about $650. So, what do you get for the extra $10?
Well, if you trust the seller and don’t want to see the pig in person, you can bid in your pajamas. Gone are the days of sinking a drive and the better part of an afternoon at a sale and feeling like you had to leave with a pig, even if the bidding gets crazy or the offerings look weak. Or, suppose you went to the local sale on Saturday and didn’t see anything you liked. Most online sales are held during weekdays, so you can bid on an array of pigs from several sellers to fill the void.
Furthermore, the online bidding function might help you stick to a budget better as you can ‘automate’ your maximum bid and might not get carried away in the heat of the moment at the sale ring. Also, you can ‘try out’ sellers you normally wouldn’t see at your local club auction. True, you may have to drive further to pick up the pig, but then again, the pig won’t have faced the stress of going into the sale ring and possibly being comingled with pigs from who knows where.
Another advantage of online auctions is that you can often buy top quality pigs year round. So, if you have a show you want to attend that isn’t during peak fair season, you need not rely upon private treaty sales, where sellers may be reticent to sell their highest quality via private treaty. In fact, one seller in our study said he specifically uses online auctions during off-peak months as a way to sell his highest quality pigs. This keeps him from having to pick favorites among his private treaty regulars who want his best pigs – they can battle it out at the auction website.
Coexist or Dominate?
Does this spell the end of traditional club pig auctions? It is unlikely. Online auctions cannot duplicate the networking opportunities and the ‘event atmosphere’ of the local club sale. Also, as one club pig buyer noted, he can better introduce his child to the concept of livestock auctions and pricing at the live event than at an online event. However, it would not be surprising if online auctions start chipping away at the dominance of traditional auctions.
Already we see that the two are finding a coexistence of sorts in the Midwest. For example, during the first seven months of 2010 in Ohio, we explored the auction opportunities available for both traditional and online sources. The Ohio’s Country Journal Spring Livestock Directory listed 27 traditional club pig auctions with the majority taking place during April and a couple in March and May. The online auction site www.showpig.com listed 28 sales featuring Ohio sellers with sales spread from January through July. During traditional sale months like April the online auctions get smaller (average 10 pigs per sale) and occur during weekdays, but during non-peak months, online sales get larger.
One thing is certain: there are now more options than ever for youth exhibitors to source pigs for the upcoming fair. From our study, it appears that prices are quite comparable between online and traditional sources. But only time will tell if both markets will come to share market volume equally or if one format or the other comes to dominate.