Auctions
Comparison between English and Dutch auctions
An English auction involves the auctioneer starting out at a low price and calls out prices to the highest price in which no bidder is willing to go beyond. In an event that several bidders accept the highest price the auctioneer will accept the first bidder spotted. The highest price at which no bidder is willing to go beyond becomes the value of the item (Adam, Eidels, Lux & Teubner, 2017). The Dutch auction works in a similar manner as the English auction only that the start price is set high and are successively dropped to appoint where a bidder will accept the price. The accepted price becomes the value of the item on auction.
Comparison between sealed-bid first-price auctions and Vickery auctions
A sealed-bid first-price auction primarily involves the bidders submitting their bids in sealed envelopes. These envelopes are then opened simultaneously in which the bidder with the higher value assumes possession of the item upon remittance of the amount stated. On the other hand, Vickery auction functions similarly as the sealed-bid only that the highest bidder pays the value of the second-highest bid. The highest bidder wins the auction but the price they pay is equivalent to the value of the second-highest bid.
Comparison between surge pricing and congestion pricing with examples
A surge pricing strategy involves raising of pricing when there is a surge in demand for goods and services and lowering these prices when there is a decrease in the demands for goods and services. It is primarily utilized by the private sector players in an industry. Similarly it is the pricing strategy that Uber currently utilizes. On the same note, congestion pricing also involves increasing of prices when there is a rise in demand for goods and services and lowering the prices when the demand falls. It is largely applied by the public sector players to control demand for goods and services. An example of its usage is the electric road pricing implemented in Singapore (Kaur, Goyal & Lu, 2017).
The need for an auction to uncover value in the product or service
The financial market works on a rigid framework of liquidity in regard to the disposal of the available assets. The value from which an asset is disposed off impacts the existing prices in the market which ultimately affects the overall value of an organization. Assets disposed at relatively lower prices will mean that similar assets held by individual companies work on the same value. Consequently, reducing the value of these companies. Similarly, a higher value will also increase the value of similar assets, thereby lowering their liquidity (Adam et al., 2017). Through these, an auction should always ensure it realizes the fair value of an asset to maintain price stability in the market.
How the type of auction used to uncover the value of the product or service is better at uncovering value than other types of auctions
There exist several types of auctions and each is always appropriate for the particular market it is applied. For instance absolute auctions provide a higher chance for the sale of a product or service since the auctioneers do not have a minimum price they are set to achieve. Consequently it generates competition and interest among bidders, which are essential in the realization of a fair value of the product or service. Similarly, the minimum bid auction ensures the seller is compensated with the minimum price they are willing to accept since the reserved price from which the bidding starts is always at their acceptable standards.
Auctions are also widely used to generate revenue for not-for-profit organizations. What are the advantages or disadvantages of auctions as revenue generators for not-for-profit organizations?
Auction is always an essential strategy for the realization of the fair value of an asset. This presents a significant opportunity for not-for-profit organizations to avoid unnecessary losses through low price selling of products and services. Avoiding unnecessary losses is essential for non-profit making organizations given their restricted access to finances. Similarly, auction allows individual organizations to control the scope of available information during sales, which is essential in ensuring the confidentiality of competitive advantage strategies a non-profit making company utilizes (Carter, Tams & Grover, 2017). However, in an event of few bidders an organization’s products and services can be undervalued as a result of the buyer power, which can result in considerable losses for not-for-profit organizations.
Suggest ways in which a for-profit company, such as the company for which you work or a company for which you aspire to work, can use auctions or dynamic pricing to better uncover value and increase revenue
Dynamic pricing strategy is an essential strategy that organizations facing seasonal shifts in demand for their products and services can utilize in maximizing their revenues and increases their competitiveness. The transportation industry always experiences such shifts with an increase in demand during festive seasons (Carter, Tams & Grover, 2017). American Airlines Company can utilize this strategy in which it increases its prices during the festive season to accommodate the surging demand for traveling space among the U.S population. Similarly, the company can decrease its prices during seasons with a decreased demand for travel space. This will ensure the company maintains the demand levels for its services at all times and increase its revenues as compared to its competitors like Delta Airlines and the United States Airlines.
References
- 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. doi:10.1080/10864415.2016.1319222
- Kaur, P., Goyal, M., & Lu, J. 2017. A comparison of bidding strategies for online auctions using fuzzy reasoning and negotiation decision functions. IEEE Transactions on Fuzzy Systems, 25(2), 425-438. doi:10.1109/tfuzz.2016.2598297
- Carter, M., Tams, S., & Grover, V. 2017. When do I profit? Uncovering boundary conditions on reputation effects in online auctions. Information & Management, 54(2), 256-267. doi:10.1016/j.im.2016.06.007