English versus Dutch Auctions
In an English auction, buyers compete openly to outbid one another in order to purchase real estate. Bids are continually raised, and the item is sold to the highest bidder. It is also possible to conduct a Dutch auction, which is descending and includes auctioning with prices reducing and selling the item to the highest bidder. To get the best price, bidding can be done multiple times by the seller, who knows the starting price is far above market value. The two auctions share a lot of similarities. As a first step, both Dutch and English speakers work for the seller if there is a minor discrepancy in their understanding of the property. First and foremost, the bidding process of the increase the required English auction is a two-pronged endeavor. Dutch bidding is characterized by the fact that the bidder is unaware of the other bids and has a strong desire to seal the deal (Andersson & Erlanson, 2013). However, there are some differences; the English auction is characterized by a sense of urgency and mounting pressure. In a Dutch auction, there is no sense of urgency or pressure.
In an auction, goods are allocated and their prices are determined through a procedure termed as bidding. Different auction structures can be more or less profitable or efficient guess it depends on the nature of goods up for auction and the properties of the bidders. To avoid complicity or cheating, auction designs always inspire bidders to provide valuations; as a result, revenues are amplified (Adam et al., 2017).
The order in which the auctioneers quote their price increases and how the bidders present their offers determine the auction taxonomy. For example, there are English auctions (open or oral bids), Dutch auctions (increasing or descending bids), and Vickrey auctions (first price) (sealed bid). The majority of auctions are conducted in either English or Dutch. In the sale of antiques, wine, and art, it is frequently employed (Budish, Cramton & Shim, 2015).
In an English auction, the highest bidder is the one who gets the item. Until there are no more bidders willing to bid, the values are announced and the product is given to the highest bidder. When bidding begins, the auctioneer sets the starting price at a level that any potential buyer would be eager and willing to pay, and then gradually lowers it until one of the bidders recognizes the final bid price (Chen & Farias, 2018). As long as a buyer is ready and willing to pay as much as he or she is willing to, this is how the Dutch system works. This buyer does not know what the other buyers are willing to pay, and they are always on the lookout for a competitor who will offer a price that is higher than theirs.
To win this Dutch auction, the highest-priced bidder or purchaser must enter his bid as soon as possible, or else risk losing out on the opportunity to win the award. Full-price bidding increases the chance of winning the item. The best way to play is to strike a balance between the increased chance of loss the product and the increased gain if he succeeds in obtaining it at a lower price. Technical skills are required for this Dutch game, which asks players to analyze other buyers’ behavior in relation to their product valuations (Deck & Wilson, 2020).
For example, when using Nash equilibrium actions, asymmetrical anticipations, and an expected gain value creation in which every bidder assumes that all the bidders’ values are generated by a rectangular density, it is possible to make the argument. When comparing Dutch and English auctions, the Dutch auction has a lower mean price than the English auction, but the English auction has a higher price variance (Malekovic et al., 2020). The speed of a Dutch auction is one of its benefits. For this reason, bids must not exceed the value of the auction items. As a result, the job of a flower market worker necessitates a lot of patience (Chen & Farias, 2018).
b) The Sealed Bid First Price Auction and the Vickery Auction.
An auction where each bidder makes a sealed bid to the seller or auctioneer, who keeps it secret, is known as a “First-Price Sealed Bid.” In this case, the winner is the person who makes the highest offer and purchases the item being sold. Vickery auctions consider the winning bidder to be the one who has paid the second-best price out of all the bidders. This method encourages the most likely buyer to estimate the true value of the product based on their own judgment.
As the name implies, sealed-bid first price auctions and Vickery auctions are a type of auction in which the winning bidder quotes their price in a sealed envelope, with no one else knowing what the other bidder has actually quoted. As a result, there’s no sense of urgency or pressure to mention the highest price. The buyer always bids lower than she or he thinks the property is worth at the auction.
One major difference between sealed bid first and second price sales is that in a sealed bid first price sale, the highest bidder gets to buy the property at the price he/she put in his/her envelope. Despite this, in Vickery Auctions, the highest bidder gets to keep the property they are bidding on. Still, he only has to pay the second-highest bidder’s price plus a small amount of additional money. In order to win, the highest bidder would have had to pay the bare minimum and still come out ahead. The Vickery method is used by eBay to sell products on its site.
Surge Pricing and Congestion Pricing
Customers are able to purchase products and services at varying prices based on current market demand through dynamic pricing, which is also known as surge pricing or demand pricing. Market forces, competitor pricing, and other factors in the market can be taken into account when determining the price of a product or service. In general, congestion pricing is a way of surcharging public properties that are subject to congestion due to high demand during peak hours and thereby regulating that demand.
Just like congestion pricing restricts the amount of demand for a given product, dynamic pricing is designed to match demand and supply. Because one takes up parking space that could have been used by someone else, parking lots charge a fee for cars to be parked during the day as an example of congestion pricing. Because people park their cars at home, there aren’t that many cars to park in the parking lots at night. Uber is a good example of Surge pricing. The price of the rides goes up when there is a lot of interest in them. Customers who don’t like the higher prices or don’t want to pay for as many vehicles as they have can find another way to get around.
Identify 3 applications of auctions used in finance, e-commerce and/or e-games
When a company is put up for sale, banks use auctions to get the highest possible price. A large number of buyers are invited to participate in the auction, allowing for this outcome. As a result, bidding wars are sparked and profit is maximized as a result of increased sales. Due to the advent of e-auction, auctions are finding numerous uses in e-commerce. When it comes to business, online transactions have made this a reality. Traditional business practices have been transformed into their electronic equivalents as a result. An online auction known as an e-auction falls into this new e-commerce paradigm (Jilani, 2014).
- Need for an auction in the product/service
Real-time pricing can be established for products and services through auctions. As a result of the information gathered through auctions, price policy is improved for consumers. When the bidding process is competitive, it also lowers the product or service’s overall carrying cost and raises the price. Because of this, the property gets the maximum attention and popularity in the business thanks to high-impact marketing. As a result, customers feel a sense of urgency and are more likely to join the ‘game.’
- What type of auction is used and why that type of auction is appropriate for the product/service.
Due to its propensity to promote higher product’s price, the Dutch auction is the most commonly used method of selling goods and services. This auction method is also quick. This means that customers will be able to buy more quickly, saving time and increasing profits. The auction is essential in financial services because it enables property developers to acquire a property at a discount, especially if the seller is motivated (Parsons, Rodriguez-Aguilar & Klein, 2011).
Advantages or Disadvantages of Auctions for not-for-profit Organizations
Many advantages can be attributed to non-profit organizations. Auctions help non-profit organizations raise money for essential operations. Organizations such as these can increase their stewardship practices by using auctions to increase the number of current donors (Chua & Berger, 2006). Additionally, auctions aid in donor retention by allowing non-profits to focus on specific fundraising priorities. Auctions are a great way to get current and potential donors excited about supporting a specific cause. An additional benefit of auctions is that they can be easily adapted to meet a variety of organizational needs. However, auctions have their drawbacks.
Organizing an auction is a time-consuming and labor-intensive process. Even though they may take a long time to complete, they may not be worth it. The second possibility is that they will result in sales at a significant discount to the retail prices. Some auctions may bring in more money than the market is willing to pay (Chua & Berger, 2006). Non-profit auctions are known for selling items at below-market prices. For the third reason, auctions may not be as useful because of various legal requirements. Non-profit organizations, for example, must acknowledge all donations worth more than $250 in writing.
Competition. The business world today is so competitive that no one is willing to lose. All of us want to win. When shopping for products, a lone shopper isn’t concerned about the competition. Because the seller lacks comparables, they are free to offer whatever they think the product is worth (Morgenstern & Roughgarden, 2016, June). Price rises as a result of increased competition when there are a large number of potential buyers.
There is always a better understanding of the buyer. A product’s performance is what a buyer is willing to pay for in a game where there are multiple buyers now, and the perceived values increase. It is conscientious of the passage of time. Buyers who need the product must bid quickly in order to have a chance of winning the bid. In the event the product owner decides to take a different offer, they don’t want to lose out on the top priority (Wei et al., 2015). There is sufficient proof to support the claim. Many buyers need to know the product’s potential value before making a serious offer. These products are being sold at a reasonable price, and this auction proves that they are.
The fear of losing something is one of the drawbacks. If they lose the auction, potential buyers may worry that they won’t be able to prioritize purchasing products like those if they don’t win. To participate in an auction, prospective bidders must first register. This will always turn away potential buyers (Wu et al., 2017). The problem is that you don’t know if your products will meet their reserve prices. Additional costs will be incurred if the products are relisted. Even if you don’t sell anything, you still have to pay the auctioneer’s fees, even if you don’t make any money. Sellers must pay for the fees of the solicitors who must accompany them at the closing. Expectations may not always be met by the final price.
Profits from online auctions are substantial. Use the following tactics to uncover prices and increase revenue. strategizing and planning Online auctions are significantly less time consuming (Li et al., 2016). Determine whether or not the items for auction have descriptions and photos before posting them online. There is a great deal of technical expertise available through online auction platforms, and their results can be measured and used to guide future auctions. To reach as many people as possible with your auctions, make use of social media tools. Providing excellent customer service is a must. Solve any issues that bidders may have by defining their contact methods in advance.
References
Abra Annes (2017). Charity Auctions: Prons and Cons, CharityChannel LLC.
Andersson, T., & Erlanson, A. (2013). Multi-item Vickrey–English–Dutch auctions. Games and Economic Behavior, 81, 116-129.
Jilani, A. (2014). Spectrum allocation methods: Studying allocation through auctions.
Parsons, S., Rodriguez-Aguilar, J. A., & Klein, M. (2011). Auctions and bidding: A guide for computer scientists. ACM Computing Surveys (CSUR), 43(2), 10. https://youtu.be/4kWuxfVbIaU
Zhu, R., Li, Z., Wu, F., Shin, K., & Chen, G. (2014, August). Differentially private spectrum auction with approximate revenue maximization. In Proceedings of the 15th ACM international symposium on mobile ad hoc networking and computing (pp. 185-194). ACM.
Adam, M. T., Eidels, A., Lux, E., & Teubner, T. (2017). Bidding behavior in Dutch auctions: Insights from a structured literature review. International Journal of Electronic Commerce, 21(3), 363-397.
Budish, E., Cramton, P., & Shim, J. (2015). The high-frequency trading arms race: Frequent batch auctions as a market design response. The Quarterly Journal of Economics, 130(4), 1547-1621.
Chen, Y., & Farias, V. F. (2018). Robust dynamic pricing with strategic customers. Mathematics of Operations Research, 43(4), 1119-1142.
Deck, C., & Wilson, B. J. (2020). Auctions in near-continuous time. Experimental Economics, 23(1), 110-126.
Javed, B., Bloodsworth, P., Rasool, R. U., Munir, K., & Rana, O. (2016). Cloud market maker: An automated dynamic pricing marketplace for cloud users. Future Generation Computer Systems, 54, 52-67.
Li, X., Ding, R., Liu, X., Liu, X., Zhu, E., & Zhong, Y. (2016). A dynamic pricing reverse auction-based resource allocation mechanism in cloud workflow systems. Scientific Programming, 2016.
Malekovic, N., Goutas, L., Sutanto, J., & Galletta, D. (2020). Regret under different auction designs: the case of English and Dutch auctions. Electronic Markets, 30(1), 151-161.
Morgenstern, J., & Roughgarden, T. (2016, June). Learning simple auctions. In Conference on Learning Theory (pp. 1298-1318).
Wei, Y., Zhu, Y., Zhu, H., Zhang, Q., & Xue, G. (2015, April). Truthful online double auctions for dynamic mobile crowdsourcing. In 2015 IEEE Conference on Computer Communications (INFOCOM) (pp. 2074-2082). IEEE.
Wu, Q., Zhou, M., Zhu, Q., & Xia, Y. (2017). VGC auction-based dynamic pricing for multi granularity service composition. IEEE Transactions on Automation Science and Engineering, 15(2), 796-805.
write