Analyzing Auctions and Dynamic Pricing

Case Study: Auctions and Dynamics Pricing
Name
Course
Professor’s Name
Date
Case Study: Auctions and Dynamics Pricing
Question One
English and Dutch Auctions
           An English auction is a type of auction where the bid starts low, and the prices increase as more buyers bid until the highest bid/price is reached (Numberphile, 1). The English auction is also called the oral ascending auction because of how the prices rise. The value of the commodity is discovered when the highest price is quoted, and no buyer is willing to bid higher than the quoted price. A Dutch auction is a type of auction where the bid starts high, and the subsequent bids decrease in price until the bid reaches the least amount that a buyer is willing to pay (Numberphile, 1). In both the English and Dutch auctions, participants/bidders bid openly for the item(s) against each other (Malekovic, Goutas, Sutanto, & Galletta, 2). Also, the winner of the bid in both auctions pays the exact amount they bid for, that is, the first price.
           However, other than the fact that the Dutch auctions start high and the English auction starts low, another difference lies in the flow of information to the bidders. According to Malekovic, Goutas, Sutanto, and Galletta (2), participants in the Dutch auction face more uncertainty than their counterparts in the English auction because, in the Duct auction, bidders cannot see the bids from other bidders until the final bid that closes the auction is quoted. The bidders in English auctions can see the bids of other bidders and have more information. Also, emotions and emotional responses in the English and Dutch auctions are different. Emotions have a higher impact on price in a Dutch auction than in an English auction (Deck & Wilson, 3). The emotional processing in a Dutch auction is higher than in an English auction (Malekovic, Goutas, Sutanto, & Galletta, 2). Bidders bid a bit higher in the Dutch auction because of the excitement (Numberphile, 1).
Sealed-bid First-price Auctions and Vickrey Auctions
           A sealed-bid first-price auction is a type of auction where the bidders seal their bids in an envelope and submit them at the same time (Numberphile, 1). The bidder who quotes the highest price wins the item. On the other hand, a Vickrey auction is a type of sealed-bid auction where bidders submit their bids in a sealed envelope at the same time, but instead of the highest bidder paying the first price/highest bid, they pay the second-highest bid/price (Numberphile, 1). This is why it is also called the second-price sealed bid auction. In both types of auction, bidders submit their sealed bids simultaneously in a sealed envelope. In addition, the flow of information is also limited in both auctions because the bidders are not aware of what other participants have bid on the item. 
           However, in a sealed-bid first-price auction, as the name suggests, the price paid by the winner is equal to the highest bid. (Deck & Wilson, 3). Thus, the winner pays the exact amount they bid on. But in a Vickrey auction, the price paid by the winner is the second-highest bid, although the winner is the bidder who bid the highest amount. Also, determining the value of an item in a Vickrey auction is a bit complicated. It becomes difficult to establish whether the seller received a fair value for their item since the buyer does not pay the actual amount they were willing to pay.
Question Two
           Surge pricing refers to a pricing strategy where the prices of goods/services are raised above the normal price when the demand increases (Zha, Yin, & Du, 4). The idea is for companies to take advantage of specific zones of the entire market when the demand is high and lower the prices when the demand is low to maintain some form of equilibrium in the market. By taking such an advantage, companies maximize the revenue generated during peak seasons. An example of surge pricing is the pricing that occurs in ride-hailing companies such as Lyft during peak hours/seasons.
           Congestion pricing refers to a pricing strategy where high prices are charged on public goods or services prone to congestion due to increased demand during peak seasons (Selmoune, Cheng, Wang, & Liu, 5). The idea is to ease/reduce congestion by reducing the demand for the goods/services because most consumers will be deterred from using the goods/services when the prices are higher. Once more consumers start looking for alternatives, the demand for the goods/services will stabilize, thus reducing congestion. An example of congestion pricing is the pricing that regulates traffic congestions in big cities such as New York and London (Tirone, 6). Drivers are charged a certain fee to enter certain zones in busy cities, and the fee discourages them from entering such zones, thus reducing traffic congestion.
           In both surge and congestion pricing, the prices go high when the demand for goods/services is high. Thus, both may have the same effect of encouraging consumers to look for alternatives until the demand stabilizes. Also, both pricing promotes revenue maximization. In surge pricing, the companies applying such a strategy generate more revenues during peak seasons (Zha, Yin, & Du, 4). Similarly, in congestion pricing, the entities charging the fee generate revenue that would otherwise have not been generated (Selmoune, Cheng, Wang, & Liu, 5).
           However, surge pricing focuses on ensuring market equilibrium by matching supply with demand (Zha, Yin, & Du, 4). Surge pricing encourages suppliers to provide more goods/ services to meet the high demand because they earn more during peak seasons. In contrast, congestion pricing discourages consumers from using the goods/services. The high prices deter consumers from using the product/services and encourage them to look for cheaper alternatives. In a way, the assumption in surge pricing is that consumers have no alternatives and will be willing to pay for the high prices. The assumption in congestion pricing is that consumers have alternatives and will opt for those alternatives to avoid paying more.
Question Three
           Auctions are commonly used in finance, e-commerce, and e-games, among others, to establish the prices of commodities when the value is unknown by both the seller and the buyer. According to Numberphile (1), auctions are held to help in price discovery, uncovering the price/value of goods/services. Some of the auctions used in finance, e-commerce, and/or e-games include name-your-own-price auctions, penny auctions, and reverse auctions. 
1 Name-your-own-price auctions: This auction matches buyers and sellers. Usually, potential buyers state the product/serv...