An auction
An auction is a method of price discovery that determines what individuals are supposed to pay for a specific item and who will get it from the sale. The potential buyers of an item express their desire, which turns into a price that shows who gets to go home with the thing. The competition in an auction is responsible for pushing the price up until one individual who affords the item is left standing. An auction is primarily held for things whose real value is unknown, and individuals get to battle by stating their buying prices. Most of the items within an auction are scarce in supply or consist of unique pieces of materials and artifacts. States have introduced guidelines that should be followed when carrying out an auction. Individuals should not buy essential items because of being desperate in an auction. Sellers are not supposed to take advantage of desperate buyers in an auction. Most of the auctions serve numerous purposes, which are of benefit to individuals and society.
Numerous types of auctions are in existence, and they play a significant role in uncovering the real price and value of an item. Some of the frequent auctions include the English and Dutch auctions. The two types of auctions have both similarities and differences. An English auction is the most common form of auctioning materials. The auctioneer begins by announcing the reserved price of a particular item, and the interested buyers start placing their bids on the item. The buyer that places the highest bid and is not displaced by any other individual is considered the winner. In the Dutch auctions, the bidders are uninformed of their valuations, and it is assumed that the information acquisition activity is covert (Miettinen, 2013). In a Dutch auction, all the bidders assemble, and the price of an item starts high and is gradually lowered. There is more top competition because some individuals jump for the bid even if the price drop is very slight. This is different to the English auction where the price rises gradually.
Another type of auction is the sealed-bid auction and the Vickery auction. The two forms have similarities and differences in how they are administered in an auction. In the sealed-bid auction, the bidders put the amount of money that they are willing to spend in envelopes. The envelopes submitted by the bidders are all opened simultaneously, and the individual with the highest bid gets to purchase the item on sale. In most circumstances, the sealed-bid method is used by governments, and in some cases, large corporations also use the technique. This method makes it hard for illegal activities such as cheating to be carried out. William Vickery discovered Vickery auctions. (YOUTUBE)The type of auction is similar to the sealed-bid method, but in this case, when the envelopes are opened, the highest bidder wins. However, the highest bidder has to pay the second-highest bid. This makes individuals bid more aggressively so that they can win a particular item.
Some corporations and large organizations set prices for their goods and services, which individuals will have to pay. This can be part of the marketing plan for a particular business venture. Surge pricing is evident in circumstances where there is an increased demand for services from a company, and the company decides to increase its offering. Surge pricing helps in maximizing profits for an organization. An example is the Uber Company, which has introduced surge pricing mechanisms. Congestion pricing is whereby an excess charge is imposed for services that are likely to increase in demand. Users of public goods that are likely to experience congestion are charged an additional price to reduce congestion. This can be seen where measures such as toll fees are introduced (Daganzo, 2015). This helps in reducing congestion where necessary. The excess demand is greatly reduced after the introduction of extra charges, and individuals who do not find it essential will not cause more congestion.
Auctions are widely used in numerous fields of the economy. Auctions can be incorporated in finance, e-commerce, and e-games. An auction in e-commerce takes place between sellers and the bidders within an electronic forum. E-commerce auctions can involve business to business and business to consumer types of auctions. Examples include eBay, WebStore, and Overstock. Auctions can also be incorporated in various ways within the finance sector. Finance auction involves investment banking, private equity, and leveraged buyouts. Multiple buyers are invited to the auction, and competitive bidding raises the price, and in this way, the bank maximizes its profits. The effectiveness of this innovative policy tool is crucial for understanding the central bank’s role in financial stability (McAndrews, 2017). E-games can also have auctions taking place. Auctions can take place within the gaming sector, where market simulations are shown, and individuals learn how to conduct market research using real-life problems.
An auction has the primary purpose of uncovering the value of a product or service. The buyers, sellers, and the spectators learn how an auction is efficient in showing the cost of an item through the bidding process. Some of the buyers in an auction are individuals who move around looking for pieces of materials that have significance to them. An individual with interest will have to place the highest bid in an auction so that they get to win the item in most circumstances. Buyers in auctions often come across rare items, and they can take home the items if the bidding competition is not tight. The number of sellers and buyers can be used to achieve a range of questions on what the real value a particular item should be administered (Yang et al. 2014). Some of the goods presented at an auction are rare, and the cost is determined by the bids raised by the interested individuals.
There are different types of auctions, and they all play an essential role in determining the value of a particular product or service. Different individuals prefer using different auction methods to purchase the goods and services which they find necessary. For instance, methods of auctions such as the sealed bid have advantages over other methods. The price of a specific item is not announced to the bidders for the bidding process to begin. The process starts where individuals place their bid prices in envelopes, and the highest bid is considered the winner. Unlike other forms such as the English auction, the standard price is announced, and the bidding begins where the individual who bids the highest price is the winner (YOUTUBE). The sealed-bid type of auction can be considered better by individuals, while others might have a different opinion and prefer the English auction. Individuals have their views on how one type of auction is better in uncovering value compared to another.
Auctions have their advantages and disadvantages as they are used to generate revenue for different organizations. The non-profit organizations are expected to work for the public good rather than having intentions to make profits. The organizations are exempted from tax in various settings, which ensures all the proceeds benefit the public in one way or another. Auctions can serve to benefit non-profit organizations since the money they obtain through the auction is cycled back to the improvement of the organization. The organizations exist for long if there is the accountability of the funds as long as the money’s purpose is relevant in making a positive change. Corporate volunteering is widely perceived as an opportunity and a promising method of raising donations for non-profit organizations (Samuel, 2013). The organizations benefit from the income raised through auctions and other donations so that they can operate effectively.
Companies that are focused on making profits can use an auction as a method of increasing their revenue. Goods and services provided by a company can be auctioned to raise income in several ways. For example, motor industries can increase revenue through auction. Some of the vehicles are designed extraordinarily, and very few types of particular cars are produced. The motor vehicles that have been exceptionally designed can be auctioned where the value will be uncovered during the auction. The individuals bidding end up purchasing the cars at extremely high prices, and this is an advantage to the company (Liu, 2018). The funds obtained from the auction of rare models of vehicles can economically boost the company.
In conclusion, auctions serve as benefits to the majority of society members. Individuals can auction some of their items, and the real value is uncovered. Some items in an auction may seem less important; however, the real value is discovered when different bidders name their prices. There are many kinds of auctions, and they exhibit different characteristics. However, at the end of every auctions despite the type used, the value of an item is known. Auctions are widely used in many sectors, and auctions need to be used more often in determining prices of things that might be considered worthless. Revenues can be generated through auctions, which helps the different organizations run efficiently without a financial crisis. Many items are of unknown value, and auctions serve to show the substantial cost of the item.