The Value of Auctions in the Economy
Auctions can be an important tool for selling goods and gathering information. Auctions are used in multiple venues including agriculture, eBay, and distressed asset sales. The seller does not have to worry about estimating demand and setting a price because the demanders will do that through the auction process.
Write an essay examining the value of auctions in the economy by addressing the following items.
- Explain the difference between oral auctions and second-price auctions, including how they work and their results.
- Use the expected value information to illustrate how having more bidders in an oral auction will likely result in a higher winning bid.
- Explain how the number of bidders in a common value auction affects the outcome of the auction. Relate this to the effect on price in different market structures based on the number of producers.
- Auctions lead to outcomes where buyers reveal their value for the products being auctioned. To successfully price discriminate, firms often rely on buyers revealing their value for products. Explain the conditions necessary for firms to be able to price discriminate.
Your essay must be at least three pages in length (not counting the title and references pages) and include at least three peer-reviewed resources. Adhere to APA Style when writing your essay, including citations and references for sources used. Be sure to include an introduction. Please note that no abstract is needed.
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Auctions Auctions Auction is an economic mechanism that aims to allocate products and formulate prices for such products through the bidding process. Notably, auctions are essential avenues for selling goods and gathering information about price and value. There are numerous areas where auctions are utilized. The product owner does not need to set the price or estimate the value of the good because interested people can set their price through the auction process. Depending on the nature of bidders and items, diverse auction structures can be more appropriate and suitable. Through the auction mechanism, bidders can reveal their valuations, discourage cheating, and maximize profits for sellers. The auction process is usually complete once the product owner accepts the highest offer and the buyer completes the payment for the products. Oral auctions are different from second-price auctions in numerous ways. First, the winning bidder does not reveal the reservation price in oral auctions. Another aspect of differences arises from the strategies employed in the auctioning techniques. During an oral auction, the seller usually sets a reserve price, the lowest price that the owner is willing to accept during the bidding process (Engelbrecht-Wiggans & Kahn, 1991). This is usually treated as the opening price for bidders. Therefore, bidders typically set their prices higher than the reserve price that the auctioneer set. When bidders start placing their bids, the seller also increases the cost until no other individual is willing to increase their price. Therefore, the individual with the highest bid price seals the deal with the owner. Through this auctioning process, bidders can compete openly and understand how the product's price increases. On the other hand, second-price auctioning requires bidders to submit their prices in an envelope. The seller will open the sealed envelopes and identify the highest bid among those submitted. However, the buyer will not pay the highest bid but the price that the second-highest buyer offered. In this regard, bidders can place their best bids without fear because they are confident that they cannot pay more for the product. Therefore, the results of both auction procedures are that the highest bidder wins the product. However, in an oral auction, buyers can compete until they are satisfied that they can no longer increase their prices (Engelbrecht-Wiggans & Kahn, 1991). On the other hand, second-price auctions allow buyers to place their bids through envelopes, and the winner pays the second-highest price instead of his or her actual bid. There are instances when bidders have information about a particular product's expected future value. In this regard, every willing buyer can calculate the expected value of the auctioned product, estimating the auctioneer's profit. Through this approach, every buyer can set his or her bidding price and determine the ...