Part One
Auction is the process of buying and promoting services or products through a thorough bidding mechanism. The best bidder takes the product or the service they bidded. Also, it can be defined as the process where bidders compete with one another over items and services (Rodríguez et al., 2020). Auctioning has gone through unprecedented growth for decades, and it exists in several market sectors like artwork, real estate, and the Internet market (Rodríguez et al., 2020).
Importance of Auctions
Auctions provide an accurate indication of the true market price of objects or even services. Competition allows the consumers to declare their readiness to pay what is fair, which provides a clear and straightforward means of pricing. This is particularly important in price-setting industries such as art, real estate, or commodities. Moreover, an auction is a means of dispersing products to the most relevant consumers. Spectrum auction for telecommunication reflects this whereby the government provides frequencies of the band to a company that agrees to bid higher, thereby using limited resources optimally (Rodríguez et al., 2020). Asset value is allocated amongst creditors using premiums, which means more yields to creditors in liquidation situations. Thirdly, auctions provide salespersons with a chance to access multiple interested buyers. It is particularly convenient in respect of special or unusual objects whose market price cannot be defined exactly (Rodríguez et al., 2020). Due to online auctions, the market has become wider for a seller and buyers even though they are far away.
English Auction
This is the most common type of sale. It involves an open tender process in which participants bid publicly, and the auctioneer gradually increases the bid until no one is willing to bid more (Rodríguez et al., 2020). The item is sold to the highest bidder for the final bid. Real-time communication between bidders creates a competitive environment.
Sealed-Bid Auction
In this kind of auction, bidders submit their bids in sealed paper or electronically without knowing the other bidders’ bids. After collecting all the bids, the auctioneer opens and hands the item to the highest bidder (Omar et al., 2021). This process is commonly used in government purchases and sales of private property.
Reverse Auction
In a reverse auction, the functions are reversed as compared to a traditional auction. Vendors compete to win the patron’s commercial enterprise by means of supplying the lowest prices or excellent phrases (Omar et al., 2021). This form of public sale is normally utilized in procurement, where more than one supplier bids in opposition to every different to provide items or offerings at a nominal value to the customer.
There are just a few examples, and there are commercial outlets that suit different industries and purposes. Each sale has its merits and is selected based on factors such as the nature of the product being sold, market conditions, and stakeholder preferences.
Part Two: Reasons for Using Auctions in Certain Situations
Art Auctions:
An example is the Christie’s or Sotheby’s auctions for high-quality artwork. Reasons for Art auctions are that they are used to decide the marketplace price of artworks, in particular for rare or specific pieces (Khorasany et al., 2019). Bidders, which include art creditors and buyers, compete to gather valuable and often one-of-a-kind objects. The competitive nature of auctions facilitates the setting up of a fair market rate, and the transparency benefits each consumer and dealer.
Real Estate Auctions:
An example in this case is the Property auctions performed by companies like Auction.Com. Real property auctions are hired to sell houses, especially those with specific features, distressed houses, or homes concerned in felony court cases (Khorasany et al., 2019). Auctions offer a time-certain procedure, creating urgency amongst buyers. Additionally, they ensure a fair and transparent sale, preventing protracted negotiations.
Internet Markets:
For example, eBay, an online auction and shopping internet site. Online auctions allow for the sale of various properties, from uncommon collectibles to normal gadgets. The bidding manner encourages aggressive pricing, and the public sale format can generate exhilaration and interest among shoppers (Khorasany et al., 2019). It is a way to effectively suit buyers and dealers in a great online market.
Government Procurement:
An example is the Government auctions for surplus items or public contracts. Governments use auctions to allocate sources correctly. Surplus items are offered to the very best bidder, and public contracts can be provided to the organization, providing high-quality phrases (Khorasany et al., 2019). This obvious method guarantees that public assets are applied correctly and that the authorities get the price for money.
Spectrum Auctions:
An example is FCC spectrum auctions for telecommunications frequencies. Spectrum is a finite and precious aid. Auctions allow telecommunication corporations to bid for the proper use of precise frequency bands (Braghin et al., 2019). This market-pushed method guarantees that frequencies go to the agencies inclined to make investments in the maximum, main to highest quality use of the spectrum and inspiring innovation inside the telecommunications enterprise.
Energy Markets:
Example: Electricity markets with auction mechanisms for strength purchase agreements. Renewable power auctions, for instance, permit governments or utilities to stabilize strength at competitive costs (Braghin et al., 2019). Developers bid to sell their strength to the grid, fostering opposition and driving down expenses. This technique facilitates an increase in the renewable energy quarter and achieves powerful electricity generation.
Domain Name Auctions:
An example is GoDaddy auctions for domains. Domain auctions provide a platform for individuals or companies to shop for and sell valuable domain names (Khorasany et al., 2019). Bidders compete for suited and remarkable internet addresses, and the public sale format guarantees that the area goes to the party willing to pay the best fee.
In these times, auctions are used to achieve diverse targets, along with charge discovery, efficient allocation of resources, market entry, and developing an obvious and aggressive environment. The precise reasons for the use of auctions vary by way of enterprise and context. However, the underlying principle is to harness market forces for the advantage of both consumers and dealers.
Part Three: Elements for Competitive Bidding
Scarcity or Rarity:
Items that can be scarce often pressure competitive bidding. This is not unusual in art auctions where precise portions are prominent.
Perceived Value:
The perceived fee of an item, regularly prompted by means of factors like brand reputation or historical importance, can gas aggressive bidding. Bidders may be inclined to pay more based totally on their perception of the object’s worth (Heidari et al., 2020).
Time Sensitivity:
Auctions create a sense of urgency due to their time-sure nature. This urgency can lead to greater competitive bidding as contributors’ goal is to secure the item earlier than time runs out (Heidari et al., 2020).
Emotional Investment
Emotional attachment or non-public interest in an object can pressure competitive bidding. This is frequently found in charity auctions or auctions of memorabilia where bidders are emotionally linked to the cause or the object (Heidari et al., 2020).
Information Asymmetry:
More facts about the genuine fee of an object can lead to competitive bidding. Bidders can also have varying estimates of an item’s real worth, creating an environment wherein they bid competitively to secure the object.
Challenges
Bid Restrictions:
Bid restrictions can limit the competitiveness of an auction. For instance, minimum bid increments discourage bidding, or reserve expenses set too excessive may also deter potential shoppers.
Bidding Wars:
Bidding wars occur when two or more bidders decide to outbid each other. While this could force up the very last fee, it can cause shoppers to pay more than the intrinsic cost of the object.
Winner’s Curse:
The winner’s curse refers to a state of affairs in which the winning bidder in a public sale ends up paying more than the object’s true cost (Heidari et al., 2020). This can take place when individuals get caught up in the warmth of bidding and bid better than the rational price of the object.
Part Four: Auctioning Case Study
Item: A limited-edition, autographed sports memorabilia item, such as a jersey worn by a famous athlete during a significant game. Platform: eBay, an online auction marketplace. It is a rare item that few people can afford in the market. Collectors of memorabilia and fans are attracted by this scarcity, thereby leading to rivalry among them. As an emotional item, bidders perceive this as attached to a major sports event or favorite athlete (Hu et al., 2021). Often, emotional attachment causes fierce bidding and results in higher bidding prices. Auctioned goods are offered within a specified time, thus compelling bidders. With the deadline of the auction drawing nearer, buyers can get anxious and compete for the merchandise before an alternate buyer claims it. The value, significance, and authenticity of autographs on sports merchandise also vary (Hu et al., 2021). Participants take advantage of this by relying on their estimations and appraisals of value based on information, which can influence bidding to become even more aggressive than before.
Part Five: Summary
The preceding example discussed a case of eBay bidding being fuelled by such variables as scarcity, emotional investment, time importance, and information imbalance. The manner of designing an auction platform can help achieve opposition. However, the bid limits and winners curse highlight the hurdles towards achieving true and optimal results for each buyer and supplier under an auction setting.
Reference
Braghin, C., Cimato, S., Damiani, E., & Baronchelli, M. (2019). Designing Smart-Contract-based auctions. In Advances in intelligent systems and computing (pp. 54–64). https://doi.org/10.1007/978-3-030-16946-6_5
Heidari, A., Mortazavi, S. S., & Bansal, R. C. (2020). The equilibrium state of a price‐maker energy hub in a competitive market with price uncertainties. Iet Renewable Power Generation, 14(6), 976–985. https://doi.org/10.1049/iet-rpg.2019.0958
Hu, H., Dowd, G., & Bouchard, D. (2021). When bargaining meets auctions: assessing the effect of the best offer on eBay auctions. Applied Economics Letters, 1–6. https://doi.org/10.1080/13504851.2020.1862746
Khorasany, M., Mishra, Y., & Ledwich, G. (2019). Design of auction‐based approach for market clearing in the peer‐to‐peer market platform. The Journal of Engineering, 2019(18), 4813–4818. https://doi.org/10.1049/joe.2018.9313
Omar, I. A., Hasan, H. R., Jayaraman, R., Salah, K., & Omar, M. (2021). Implementing decentralized auctions using blockchain smart contracts. Technological Forecasting and Social Change, 168, 120786. https://doi.org/10.1016/j.techfore.2021.120786
Rodríguez, M. J. G., Montequín, V. R., Fernández, F. O., & Balsera, J. V. (2020). Bidders Recommender for Public Procurement Auctions Using Machine Learning: Data Analysis, Algorithm, and Case Study with Tenders from Spain. Complexity, 2020, 1–20. https://doi.org/10.1155/2020/8858258
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