An auction is defined as an economic means that involves allocation of goods and creation of prices for these goods through bidding. Through this process, bidders form the prices of goods based on their individual valuations. However, auctions are designed carefully to encourage bidders to express their valuations for the product while discouraging collusion or cheating in order to maximize revenues. According to McAfee (2017), an auction can be considered as a method of price discovery or determining what an individual will pay for a product and who will get it. Auctions have existed for a long period of time and in different kinds depending on the specific goals of this economic mechanism. This paper examines different kinds of auctions as price discovery mechanisms and their use in different situations.
English and Dutch Auctions vs. Sealed-bid First Price and the Vickery Auctions
There are various kinds of auctions that are applicable in different situations as price discovery mechanisms. These different types of auctions differ in strengths and weaknesses at identifying the real price or value of a product/item. The four most common types of auctions are English auctions, Dutch auctions, sealed-bid first price auctions and the Vickery auctions. English auctions and Dutch auctions are similar in the sense that the bids are public announcements. However, they differ on the premise of how the bidding is done for valuation of the item. Bidding in English auctions use Open Ascending Price Auction in which the bid price increases until there are no further bids. Once the highest bid has been established and there are no further bids, the highest bidder is considered the winner and pay his/her bid. On the contrary, Dutch auctions, which are common in Europe use Descending Price Auction in which the bids start at the highest price than the initial value of the product/item and decreases until a bidder makes a call. In this case, the first bidder to make the call is the winner and pays that price.
Sealed-bid first price auction differs from English auctions and Dutch auctions in the sense that bids are private information that are made simultaneously. Unlike the other types of auctions, the bidder writes his/her bid and submits it to the auctioneer. The auctioneer opens all the bids simultaneously and the highest bid wins (McAfee, 2017). The Vickery Auction is also known as sealed-bid second price auction in which bids are private information like the sealed-bid first price auction. While the bids in the Vickery Auction are made simultaneously like sealed-bid...
The company uses an English style auction through which it sells the properties to the highest bidder. While the company has remained successful over the years, it has been embroiled in several lawsuits. The multiple lawsuits are based on allegations that the company drums up fake bidders (Clarke, 2019). The company’s use of an English style auction has contributed to its success, but also resulted in these multiple lawsuits. These types of...…auctions in the non-profit world are associated with risk management concerns since they have to accommodate different kinds of people including those with disability. This could prove to be daunting task that in turn affects the effectiveness of the auction process for the not-for-profit organization.
Using Auctions to Better Uncover Value and Increase Revenue
Companies can use auctions to better uncover value and increase revenue given the potential of auctions as revenue generators. One of the ways the company I aspire to work for can use auctions to enhance value and generate more revenue is through silent auction. Silent auction help to better uncover value or increase revenue by enabling bidders to place their bids depending on their individual valuation of a product/service without being influenced by others’ valuation. Secondly, the company should adopt a simple sequential mechanism for its auctions since it generates substantial higher profits than simultaneous bids (Roberts & Sweeting, 2012).
In conclusion, auctions are price discovery mechanisms that help generate revenues for companies and non-profit organizations. Auctions provide a mechanism for organizations to offer certain products/services to bidders who place different bids based on their valuations of the products/services. English auctions, Dutch auctions, sealed-bid first price auction, and the Vickery Auction are the four most commonly used types of auctions. These different kinds of auctions are used in different situations and are associated with different strengths and weaknesses with regards to uncovering value and increasing revenue. Companies need to examine different situations before determining the most suitable type of auction to utilize for their product/service.
References
Ausubel, L. (2001). Auctions…
