There are numerous types of auctions, each with unique strengths and weaknesses. There are diverse factors that influence an auction method's choice (Wagner & Pacheco (2020). They include the auctioneer's objective, nature or item, and market or industry dynamics. In essence, auctions have an expansive application in different areas, such as e-commerce, finance, and e-games. They are also used in revenue generation for non-profit organizations and charities. In the context of profit-making, auctions are used to generate revenue, although with the underlying objective of determining a given product's value.
Similarly, the price of new products in the market can be determined based on auctions' valuation. Based on customers' responses, the choice of an auction method can be determined by knowledge of the various methods' strengths and limitations. When comparing and contrasting different auction types, it is vital to understand their advantages and disadvantages as revenue generators for organizations.
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English and Dutch Auctions
English and Dutch auctions are among the most popular types used by businesses to determine various products' value. The two methods of auctions are applicable in different countries. They are commonly used in situations when the seller or auctioneer wants to know and sell at the highest price possible. English and Dutch Auctions are unique in the approach used, which culminates in strengths and weaknesses, which form the basis of determining which approach is suitable for a particular scenario (Adam et al., 2017). English auction begins at the minimum price and ends with the highest price available. The bid starts from the highest price in the Dutch auction and gradually lowers throughout the process, but not lower than the holding price.
The English Auction approach entails the auctioneer announcing the minimum price possible, also called the reserve price, for the item on sale. Interested buyers start placing bids on the product while the auctioneer accepts them as they come. The highest bidder at any time is considered to have the standing bid, which is solely displaced by a much higher one. Once no higher bids are coming in, the standing one is considered to have won (McPartlan, 2017). The auctioneer announces the highest bid value, and the item is sold to the bidder. In case the buyers fail to meet the reserve price, the seller can opt to reduce it or remove the item from the market.
The Dutch auction approach is unique from the English auction in that the process starts with the actioner taking in the bids before setting the base or reserve price. Buyers or investors place their bids for the amount they consider appropriate or fair for a particular quantity of the product being sold. In some cases, the auctioneer sets a high price for their product and gradually reduces it until it gets a bid. As such, the first bid becomes the selling price, and the bidder pays for the product. The price cannot be reduced beyond a set amount, which serves as the research price in this case (McPartlan, 2017). The seller may opt to remove the product from the market if the minimum bid price is reached and cannot be reduced further.
Sealed-Bid First-Price Auction and Vickrey Auction
Auction methods are also categorized as a sealed-bid, first-price auction, and a Vickrey auction. In the sealed-bid first-price auction, the bidder is only allowed one chance to bid, and all bidders bid at the same time. In the Vickery auction, bidders enter theory bid simultaneously and anonymously. In sealed-bid or first-price, interested buyers submit sealed bids without disclosing their values to each other—the auctioneer checks through to find the highest bidder to be awarded the product. The bidders can preview the item before the bid for a limited time. Besides, the winning bidders pay the second-highest bid instead of the highest bid submitted. As such, auctioning must be carefully planned if the objective is to determine an item's value.
Vickrey auction is a sealed-bid method in which individual bidders do not know other participants' value. As a result, the auctioneer must check through the collected bids to determine the average value that the people attach to the item at hand. An important feature and aspect of the Vickrey auction is that it is not sold to the highest bidder (Perrigne & Vuong, 2019). Rather, it is awarded to the second-highest bidder instead of the winning price. It is in view that every bidder bids with the highest price they intend to pay without necessarily having to mind other bids (Bubeck et al., 2017). In any case, one does not necessarily have to place the highest bid to win or have the item sold to them.
Surge pricing is on the fundamental economic principle of supply and demand. For example, companies such as Uber and Lyft adjust their fares' prices to align with a decrease in supply or increase demand during periods of excessive booking. On the other hand, congestion pricing is an approach of adding a surcharge for services, which are subject to temporary or cyclic demand. Companies use the strategy to regulate excess demand. For example, airline tickets, cell phone rates, and electricity rates use congestion pricing to reduce congestion. Also, the Peach Pass is an important example because it charges a higher fee during rush hour.
Auctions widely used in finance, e-Commerce, and e-Games
Businesses and not-for-profit organizations can choose one or several auction methods to raise revenue or determine products’ value. Each of these methods has its unique advantages and disadvantages, which must be considered to determine an appropriate strategy. Whether in finance, e-commerce, e-games, and auctions come in handy when it comes to price valuation of products and services (Bubeck et al., 2017). E-commerce auctions can be used to perform an electronically controlled e-business between auctioneers and bidders. These auctions exist in three different ways. These include consumer to consumer (C2C), business to business (B2B), and business to consumer (B2C). The auctions are also used when items are seized from debtors and liquidated to become a debtor asset. Moreover, auctions are used when financial assistance goods need to be sold competitively.
Equally important, the English auction delivers the maximum revenue from items’ sale because items are sold at the highest price possible. As such, much as it is important to consider other dynamics when selecting the method to auction goods and services, it is apparent that the English auction technique should be the preference because it uncovers value and yields the maximum revenue (Bubeck et al., 2017).
Response from bidders is a critical determinant of a new product’s price. In determining the price value of a product, an auction goes hand in hand with various pricing types. Some of the most popular pricing approaches include congestion pricing and surge pricing. Congestion pricing is an economic theory approach and a strategy meant to regulate demand by increasing product prices without altering the supply (Wagner & Pacheco, 2020). Ordinarily, prices are expected to fall with an increase in supply. However, market conditions are altered by raising the price of products while maintaining the supply fixed.
Unlike congestion pricing, which is determined by product or service providers, surge pricing is unique because demand changes determine it. In essence, surge pricing occurs whenever a business expands its services or goods because of an increase in demand. The taxi industry is an exemplary example of industries in which surge pricing applies. For instance, there are some seasons when the demand for rides increases so much that there are no cars to serve the demand. Some causes of an unusually large number of people in need of taxi services include bad weather, special events, and rush hour. Under such circumstances, prices tend to increase by a significant amount, best referred to by the phrase “price surge,” to ensure that people in need of a ride can still get the service, although at a relatively higher price.
Advantages and Disadvantages of Auctions are Revenue Generators for Not-for-profit Organizations
Auctions have several advantages and disadvantages as revenue generators for not-for-profit organizations. Auctions help the not-for-profit organizations raise the money needed to support the operations because of limited funding from the government. Auctions create awareness about the role played by not-for-profit organizations. This enables them to earn new opportunities for funds through donors and charitable organizations. Potential donors are informed of their cause and what the not-for-profit organizations represent and do to the community.
One disadvantage of the auctions for the not-for profit-making organizations as revenue generators is that they need a lot of time, effort, and work to put together. The other problem is the risk of management, especially when dealing with auctions. As such, the venue that the auction is being held has to accommodate everyone, including individuals with a disability.
Ways in which a for-profit Company that I Aspire to Work can use Auctions or Dynamic Pricing to Better Uncover and Increase revenue
A company that I aspire to work with may better from auctions to better uncover value and increase revenue. I currently work for a small financial firm to balance the books and confirm sales for a major company. I do not figure out how it would be necessary to use an auction in this situation. The business may need to increase revenue or remove assets from the company because of low sales. Also, it may host an auction to assist in removing the products held by the company due to lack of sales. One reason I can see auction working for a company I seek to work for is to introduce donors to see the positive things that the business will bring to the community. This will assist the community in uncovering the value of the programs and increase revenue.
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.
Bubeck, S., Devanur, N., Huang, Z., &Niazadeh, R. (2019). Multi-scale online learning: Theory and applications to online auctions and pricing. Journal of Machine Learning Research , 7 , 17-24.
McPartlan, P. (2017, Nov. 1). The Ideal Auction –Numberphile [Video]. Youtube. https://www.youtube.com/watch?v=4kWuxfVbIaU
Wagner, R. L., & Pacheco, N. A. (2020). Name-your-own-price as participative pricing strategy: a review of the literature from 2001–2017. Journal of Strategic Marketing , 28 (7), 583-600.
