Case Study 1 for Strayer University (Eco550) Economics Coursework

Auctions and Dynamic Pricing
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Auctions and Dynamic Pricing
One: Compare and Contrast
English and Dutch Auctions
On one hand, in the English auction, the bids start a minimum bid, and then the buyers bid their prices increasingly until they get to the highest bid. The highest bid is achieved when no buyer is willing to pay more than the last quoted price. On the other hand, the Dutch auction starts with a high bid and the seller lowers the price of the item until it reaches a minimum price that a buyer is willing to pay (Numberphile, 1). In terms of quantity, the English auction involves mostly the sale of one item, although there could be many different items being sold in the auction. However, the Dutch auction mostly involves the selling of large quantities that are homogeneous (Adam, Eidels, Lux, & Teubner, 2). Also, in cases where buyers can conspire in an auction, Dutch auctions lead to higher prices than English auctions. However, both auctions involve oral bidding and the bidders gain more information as others bid . Also, in both auctions, the buyer or winner pays the amount he/ she bid for, which is why both auctions are referred to as first-price auctions.
Sealed-bid First Price and Vickrey Auctions
In the Sealed-bid First Price (SBFP) auction, bidders submit their bids simultaneously and the highest bidder gets the commodity (Numberphile, 1). The bidders are not aware of the bids of other players in the auction since the details of the bids are sealed in an envelope and submitted all at the same time. In the Vickrey auction, the bidders also submit their bids simultaneously, and the bidders have no information about what other players have bid. But the winner does not pay the price they submitted, which was the highest price. Instead, they pay the second-highest price submitted (Numberphile, 1). This marks the key difference between SBFP and Vickrey auctions in that the value uncovered in the former depends on the first, highest bid while the value uncovered in the latter depends on the second, highest bid.
Two: Comparison between Surge Pricing and Congestion Pricing
Pricing is a crucial element in business as it defines the value of a product so that sellers and buyers can determine whether the product is worthy to be in the market. In this section, two dynamic pricing strategies, surge, and congestion pricing will be addressed. In surge pricing, a company can raise the price of commodities or services above the regular, pre-determined price, if there is an increase in demand (Guda & Subramanian, 3). However, the price does not increase for the entire market, but for the particular zone where the demand is high. In congestion pricing, high prices are charged when there is an increase in demand for goods or services that are prone to congestion during peak seasons. This is a strategy that is mostly used in regulating traffic congestion (Gu, Liu, Cheng, & Saberi, 4). The idea behind this strategy is for companies or other service providers to control excess demand by charging higher prices. Thus, users of such services/ goods will refrain from using them and look for alternatives to avoid paying high prices. Eventually, the demand will normalize.
In both surge pricing and congestion pricing, there is a key element of increasing the prices due to high demand. However, on one hand, surge pricing intends to encourage suppliers to meet the high demand from buyers. A good example of surge pricing is in Uber. which uses on-demand, independent workers. Uber uses surge pricing to ensure that these workers show up in areas where there is an increase in demand (Guda & Subramanian, 3). These workers get the incentive to work in high-demand zones because they get better bonuses. On the other hand, congestion pricing intends to discourage users from using the commodity/ service that is experiencing high demand and consequently, congestion. A good example of how congestion pricing is being applied is in relieving traffic congestion. In New York City, plans are underway to impose congestion charges on drivers getting into the city (Berger & Vielkind, 5). This will discourage drivers from entering the city during peak hours.
Three: Examples of Auctions used in Finance, e-commerce, and/or e-games
Auctions play a crucial role in commerce and are quite interesting because they do not fix the prices of commodities. But most importantly, auctions allow sellers and buyers to determine the appropriate price of commodities in a process that is commonly referred to as “price d...