Examining the Value of Auctions
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.
EXAMINING THE VALUE OF AUCTIONS
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Introduction
Auctions are essential for any industry, and some businesses depend on auctioned goods to run. The competitive nature and its dynamism are what make auctions to be quite impressive. Auctioning is a mechanism for purchasing and selling goods or services by bidding. It is a technique that allows people to bid and sell to the highest bidder. According to Bapna et al. (2009), an auction is a public sale of property or products governed by specific rules that depend on bids from participants, distribution resources, and determining prices. Auctioning has been the way to go for several generations. Auctioned products allow these businesses and business people to acquire a product at a great bargain, especially the rare products. However, it is quite important to keep an open eye on the auctioning process to avoid falling into pitfalls that come with the same. This is because there are no rules on pricing when it comes to the process of auctioning.
Define Oral and Second Price Auctions
English auction is another name for oral auction. In this auction, the auctioneer continues to bid until he is left with one bidding price only available to one bidder. In other words, the auctioneer continues to auction the commodity between a certain number of bidders until he is left with only one bidder who can pay that exact sum. Bidders get out bided, one after the other, and they are systematically and automatically eliminated from the running (Bapna et al., 2009). The approach allows the auctioneer to get the highest sum of money as it is the elementary tool that eliminates bidders one after the other. Oral auction is more beneficial to the owners of the products as they get the best deal of money. After the end of the auction, the buyers take home their purchase without incurring additional costs such as shipping fees after reaching the end of the deal.
When it comes to a second price auction, when the auctioned commodity is finally auctioned, the bidder must pay the second-best price of the object bid during the auction. The strategy allows the winning bidder to pay the bidding price of the second-highest bidder by an additional $0.01. the approach guarantees buyers some confidence to bid esteemed prices without overpaying. The second-price mechanism motivates buyers to raise their bid prices gradually as they understand that if they win, they will pay low than their bidding prices during the auctioning process. It is becoming increasingly binding. The individuals do not post a higher bid above $100 established for the products to avoid paying way more price. Besides, the individuals should not post a lower bid of the maximum value of $100 to avoid losing the product's price less than the amount they can pay. According to Bapna et al. (2009), the bidders understand the true signal about the product's true value, and the buyer with the highest value is right about the true value. For example, if two individuals, A and B, compete for the same product with respective prices of $105 and $103, A win the bid but only pays $103.
The expected value information related to the oral auction
When there are more bidders, the item's price will go up. The converse is also true in the case of fewer bidders, which is beneficial to the seller's expected value. In a three-object auction, if one or more of the additional bidder's valuations are among the top six, the other bidder's presence influences potential equilibrium prices, regardless of whether the additional bidder wins or loses a round of the auction; thus, the more bidders participate in an oral auction, the more statistically and economically noteworthy the influence on the transaction price (Bapna et al., 2009). More bidders induce strong competitive bidding to reimburse for the negative effect of the buyer's probability of winning. The findings apply to marketplaces where private negotiating is a frequent pricing approach, resulting in a larger winning bid in oral auctions. For example, a seller has a high probability of raising the jewellery price in the auction when it intrigues more bidders. Besides, the seller will raise the expected value as the bidders increase and bid for a higher jewellery price.
The number of bidders in a common v...