MBA 6053
The influence of auction on the benefit of buyers and sellers
Economics for Managers
MBA 6053
Abstract
Auctions have many different forms of organization. It gives producers and the buyers the
opportunity to trade at a desired price. Sometimes, items that cannot yet be priced or whose
prices are usually changeable. Besides, some services and products are also not to be priced in
the usual ways. In some cases, a floor price may exist. These items will be auctioned to
determine their value. When the prices offered are not higher than this floor price, the item will
not be sold. However, the bidders who attend the auction still have to pay a fee to the organizer.
This paper will discuss about two type of auctions: oral auction and second-price auction.
Figures are used to illustrate more specifically for each case.
The influence of auction on the benefit of buyers and sellers
Depending on each item, the organizer will choose the appropriate auction type. The oral
auction, the bidders will announce the price they are willing to pay for items which called open
outcry. The next competitor will learn from the previous bidders to set their own bidding price.
In second-price auction, the bidders no need to attend in the meeting room. They are allowed to
bid remotely without moving to the auction meeting. Winning results are announced by the
auctioneer. The details about bid price are private.
Auction is an event where the many parties can bid for the right to purchase the particular
item: goods or service. The auction can be organized in different ways and each type will have
different characters. The bidders who “originally have private information about their types,
gradually learn the values of others, and can adjust their bids repeatedly” [CITATION Ede07 \l
, 1033 ].
In oral auction (or English auction), the bidder will give the bid price based on the price
has been revealed by previous bidders until just remain only the last bidder. In this situation, the
decision had given based on other’s decision is called sequential game – a branch of game
theory. “The predictive success of this iterative reasoning process hinges on players’ complete
confidence in other applying the same logic in arriving at the backward induction outcomes”
[ CITATION Aum95 \l 1033 ]. Before the-next bidder raise his bidding price, he will analysis
the bidding price of previous bidder. Then, he will try to give the price that he thinks hard to
beat.
For example, in the oral auction of antique stamp has two bidders. Two bidders have values of
$280 (bidder A) and $205 (bidder B), the bidder A with bidder price is $280 will win right after
the bidder B give up and stop bidding. The item is awarded to the last bidder who has the highest
bidding price. Usually, oral auction is organized in the meeting room with many participants
attend directly. “The English auctions used an ascending clock to set price, with price staring at x
and increasing continuously” [CITATION Lev96 \l 1033 ]. Each bidder will open outcry to give
the bidding price in limit time so sometimes they are not thinking carefully to consider the best
price. Because bid prices are publicly announced, there are often cases of collusion among
bidders. Specifically, the actual price of the antique stamp is $70. Bidders intentionally released
inaccuracies information in order to increase the initial bid value to $150. There will be two
scenarios in this scheme:
Scenario 1: Bidders have already selected the winner.
Scenario 2: Bidders push the price up to find the winner to take the winner’s curse. Due
to lack of information and personal feelings, he will try to bid by winning by offering a higher
bid relative to intrinsic value of the product.
As a result, the winner will pay the price at $205 to get the product. In some cases, he
pays a bit higher than the second-highest bid. This will depend on the product and rules of the
The influence of auction on the benefit of buyers and sellers
Economics for Managers
MBA 6053
Abstract
Auctions have many different forms of organization. It gives producers and the buyers the
opportunity to trade at a desired price. Sometimes, items that cannot yet be priced or whose
prices are usually changeable. Besides, some services and products are also not to be priced in
the usual ways. In some cases, a floor price may exist. These items will be auctioned to
determine their value. When the prices offered are not higher than this floor price, the item will
not be sold. However, the bidders who attend the auction still have to pay a fee to the organizer.
This paper will discuss about two type of auctions: oral auction and second-price auction.
Figures are used to illustrate more specifically for each case.
The influence of auction on the benefit of buyers and sellers
Depending on each item, the organizer will choose the appropriate auction type. The oral
auction, the bidders will announce the price they are willing to pay for items which called open
outcry. The next competitor will learn from the previous bidders to set their own bidding price.
In second-price auction, the bidders no need to attend in the meeting room. They are allowed to
bid remotely without moving to the auction meeting. Winning results are announced by the
auctioneer. The details about bid price are private.
Auction is an event where the many parties can bid for the right to purchase the particular
item: goods or service. The auction can be organized in different ways and each type will have
different characters. The bidders who “originally have private information about their types,
gradually learn the values of others, and can adjust their bids repeatedly” [CITATION Ede07 \l
, 1033 ].
In oral auction (or English auction), the bidder will give the bid price based on the price
has been revealed by previous bidders until just remain only the last bidder. In this situation, the
decision had given based on other’s decision is called sequential game – a branch of game
theory. “The predictive success of this iterative reasoning process hinges on players’ complete
confidence in other applying the same logic in arriving at the backward induction outcomes”
[ CITATION Aum95 \l 1033 ]. Before the-next bidder raise his bidding price, he will analysis
the bidding price of previous bidder. Then, he will try to give the price that he thinks hard to
beat.
For example, in the oral auction of antique stamp has two bidders. Two bidders have values of
$280 (bidder A) and $205 (bidder B), the bidder A with bidder price is $280 will win right after
the bidder B give up and stop bidding. The item is awarded to the last bidder who has the highest
bidding price. Usually, oral auction is organized in the meeting room with many participants
attend directly. “The English auctions used an ascending clock to set price, with price staring at x
and increasing continuously” [CITATION Lev96 \l 1033 ]. Each bidder will open outcry to give
the bidding price in limit time so sometimes they are not thinking carefully to consider the best
price. Because bid prices are publicly announced, there are often cases of collusion among
bidders. Specifically, the actual price of the antique stamp is $70. Bidders intentionally released
inaccuracies information in order to increase the initial bid value to $150. There will be two
scenarios in this scheme:
Scenario 1: Bidders have already selected the winner.
Scenario 2: Bidders push the price up to find the winner to take the winner’s curse. Due
to lack of information and personal feelings, he will try to bid by winning by offering a higher
bid relative to intrinsic value of the product.
As a result, the winner will pay the price at $205 to get the product. In some cases, he
pays a bit higher than the second-highest bid. This will depend on the product and rules of the
