English and Dutch Auctions
The primary difference between Dutch and English auctions is in quantity and openness. In English auctions, the increase in commodity price increases in the statement of higher amounts by each bidder. The biggest bidder buys the product. However, when the buyer does not reach the set or rather reserved price of a commodity, the product is removed from the market. For example, if customers A, B, C, and D purchase commodity Y and quote their bids as 150, 200, 250, and 300, respectively, D, who is the highest bidder, will be given the item.
On the other hand, a Dutch auction lowers the item's price, and the product is given to the bidder who accepts the price first. However, if none of the bidders agrees to the absolute minimum set price, the product is removed from the market (Adam et al., 2017). Compared to the English auction, there are conditions when not met in both auctions; the product is taken out of the market. An example of the Dutch auction is when the seller decides to set the highest amount on commodity Y and gradually decreases. Therefore, if customer D becomes the first person to agree to the item's price, it is given to them. Another contrast between English and Dutch auction is that the former takes place in an open environment where each bidder knows every other person’s bid. Simultaneously, in a Dutch auction, business is in a closed environment where no one knows what the fellow bidder offers for the commodity.
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Sealed-Bid First Price Auctions and Vickery Auctions
Both sealed-bid first price and Vickery auctions involve private bidding with the attempt to purchase a commodity, but the striking difference exists in the movement of the item. Following simultaneous bidding by interested buyers, an evaluation is done by the seller, and the property gets sold to the highest bidder in sealed-bid first-price auctions. Contrastingly, the Vickery auctions hold the assumptions that the highest bidder is considered but pays the second-highest bid (Wang & Guo, 2017). However, in both cases, the buyers’ price is not affected by their emotions as each of them offers the actual value.
Surge Pricing and Congestion Pricing
From the standpoint of the economic theory of pricing, congestion pricing is a dynamic pricing strategy designed to regulate demand for goods by increasing the pricing while holding the supply constant. Congestion pricing is a common ploy in the transportation industry, where its core aim is decreasing the congestion and air pollution in a congested part of the city (Clements, Kockleman, & Alexander, 2020). Another typical example is the hospitality industry, where accommodation prices increase during eventful days and holidays because many people tend to spend a significant part of their time in hotels. On the other hand, Surge pricing is a form of congestion pricing, but the value of the commodity remains flexible. Surge price varies depending on the changing circumstances, such as peak demand for goods and services, the customer's status being targeted, and other emerging market conditions. A current example of surge pricing is in soccer, where the ticket prices increase because the game attracts a massive crowd of fans.
Auctions used in Finance, E-Commerce, and Games
Auctioning in finance is used to purchase and sell the entire firm, including its securities. Bankers apply the strategy of auctioning to reach multiple buyers. The approach is essential as it engages potential bidders that would offer the highest prices when selling a company. The process of auctioning is used to provide promotional opportunities. In e-commerce, auctioning is crucial as it enables reaching for more buyers. Through social media platforms, online bidding is utilized to venture into a business that involves organizations, organizations, consumers, and consumers. In E-games, they act as auctioneers and perform the process of auctioning. The agents here are permitted to submit bids dependent on the governing rules and arrangement. The auctioning process, therefore, helps entities into the market.
Need for an Auction to Uncover Value in a Product or Service.
The process of auctioning plays a crucial role in uncovering the commodity value. Remarkably, the auction's parts are essential for revealing the strategic ways the optimum amount of product can be realized when put on sale. Through the encouragement of large participants, buyers stake higher prices of the commodity to stir competition. The final cost of the product is based on the highest suggested price. Also, the equilibrium price can be determined through an auction whereby potential buyers place competitive bids (Perrigne & Vuong, 2019). Furthermore, auctioning enables companies to popularize their products in both local and global markets. Usually, the promotion of items takes place when a company engages bidders from different backgrounds during auctioning.
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.
Depending on the scenario and application, each type of auction has its strengths and weaknesses. In a system where the highest possible price of a commodity is anticipated, the English auction works better than the alternative Dutch and sealed bids. The rationale stems from the openness of the process that requires competition among bidders. Usually, bidders go against each other by stating more prices and eventually selling the product with the highest value. When such emotion is absent among buyers, the English auction becomes less critical while the Dutch auction becomes the most applicable. Private auctioning enables a company to realize or instead uncover each bidder's value and submits their offers based on the actual perception (Zhang & Buyer, 2018). This realization is in contrast to the English auction that depends on people’s feelings and emotions to determine commodities' prices.
Advantages or Disadvantages of Auctions as Revenue Generators for Not-For-Profit Organizations
To an extent, non-profit organizations depend on auctions to create their revenues. However, depending on the strategies applied, the consequences can be advantageous or disadvantageous to the organization. One benefit is understanding the real value of the property (Huffman & McCluskey, 2017). For example, in a scenario where the Dutch or sealed auction has been used, buyers portray their honest suggestions of the real value of the product privately. This privacy allows the organization to realize the possible ranges of the value of the commodity. In such a case, the emotions of bidders are not controlled by the suggestions of other bidders. Furthermore, no one is aware of the recommendations of fellow bidders. Another advantage of using auction stems from the generation of revenues when a commodity is sold at a higher price than the actual value. In cases where the English auction is used, the item's prices could increase as a result of emotions. For instance, in the process of competing for who will purchase the commodity, the price could increase beyond its traditional value. Consequently, the organization benefits based on the highest price offered.
Besides the benefits, the wrong choice of auction method could be disadvantageous to a non-profit organization. When buyers' emotions are a strategy to realize the highest price, the English auction strategy should be applied. If a firm uses alternative private auctions such as Dutch and sealed bids, the product's value may not remain low. Another disadvantage would be borne as a result of making use of ineffective auction methods that are not generating substantial revenue. Usually, this takes place when the market has limited bidders. These bidders could be unwilling to suggest high prices for the commodity.
Ways in Which a For-Profit Company Can Use Auctions or Dynamic Pricing to Uncover Value Better and Increase Revenue
When appropriately applied, auction strategies are crucial in uncovering the value of a product and increasing revenue for the firm. Essentially, the choice of auction method is critical in income creation. To arrive at the desired auction's right choice, a market analysis, for example, bidders' type and the number is essential. For instance, in a market with many bidders, the bet auction would be the English because of the possibilities of increased priced commodities from buyers who want to portray their capability to buy a product. Through emotions, an item or service's price can reach its peak as each bidder places a higher price than that of their competitors. In a case where buyers are limited, a for-profit company should consider other forms of auctions such as sealed bids and Dutch as opposed to the English auction. Through a confidential evaluation of the winner, the company can determine whether they are incurring losses or benefits.
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. https://doi.org/10.1080/10864415.2016.1319222
Clements, L. M., Kockelman, K. M., & Alexander, W. (2020). Technologies for congestion pricing. Research in Transportation Economics , 100863. https://doi.org/10.1016/j.retrec.2020.100863
Huffman, W. E., & McCluskey, J. J. (2017). Using stated preference techniques and experimental auction methods: a review of advantages and disadvantages for each method in examining consumer preferences for new technology. International Review of Environmental and Resource Economics , 10 (3-4), 269-297. DOI : 10.1561/101.00000088
Perrigne, I., & Vuong, Q. (2019). Econometrics of Auctions and Nonlinear Pricing. Annual Review of Economics , 11 , 27-54. https://doi.org/10.1146/annurev-economics-080218-025702
Wang, C., & Guo, P. (2017). Behavioural models for first-price sealed-bid auctions with the one-shot decision theory. European Journal of Operational Research , 261 (3), 994-1000. https://doi.org/10.1016/j.ejor.2017.03.024
Zhang, S. X., & Bayer, R. C. (2018). Does suspending an English Auction increase revenue? Economics Letters , 162 , 98-100. https://doi.org/10.1016/j.econlet.2017.10.025
