Auction

Auction

Types of auctions

From this chapter, I learnt that auctioning is the process of trading goods or services by offering bids. It, therefore, means that auction sales form price competitions in which the customers are given the freedom to influence the price of the seller. The model is often used by many trading companies universally. An example of a company that uses this model is the CarBargains company. In this chapter, I also came across numerous essential concepts. These include the different types of auctions and the process of determining price in each of them. The English auction is one type of auction sales. From this, I learnt that in this type of auction, the cost of commodities is determined by the value. In this model, bidders offer cumulative bids until only one customer remains.

The Vickrey auction is a closed-bid sale, in which the highest bidder wins the contest but pays the second-uppermost bid. Such auctions are similar to verbal auctions and are suitable for internet users. It was also meriting to note that such auctions are also known as second-price sales.  It is also essential recording that the outcomes of both the oral and the Vickrey auction are the same.

The models are smoother to run as compared to the English-auction models because customers can bid remotely (Le, 2018). The third type of auction is the sealed-bid sale. In this, the highest contestant wins the bid and must pay its value. In this type, contestants must evaluate the benefits of purchasing the goods at a higher price. Assessing the benefits enables the bidder to determine the expected costs. Experience and knowing the contending bidders are the essential keys to auctions of this kind. In case there is stiff competition, bidders should bid aggressively and shade less

Bid rigging

Bid rigging is a deceitful scheme in the procurement of auctions culminating in non-competitive bids. This happened when the proposals won in the second auctions are re-auctioned by the winners in a coordinated act of collusion (Connor, 2014). Re-auctioning of goods won in the second- sales are illegal in the US and other countries as it a violation of the antitrust laws. It is also known as a “knockout auction. Bid rotation is another type of conspiracy. In this system, the traders offer favours to their customers and receive tokens in return. In such arrangements, bidders submit fragile bids or desist from bidding until the negotiated time reaches. It, therefore, leaves the auctioning process vulnerable to cheating. To avoid cases of rigging, bidders should not trust the purchasing agents because in most cases, they may be biased. Bidders should avoid using the procurement process choreograph social agendas

Importance of understanding these concepts and their applications

Studies in managerial economics seek to determine the best pricing methods that institutions can apply to maximize their profits. In this case, auctioning is one of the best ways of maximizing profits. Auctions are likely to maximize profits because the process involves competitions among the bidders. Sellers often benefit from these competitions as their goods are expected to trade at high prices depending on the level of competition (Khoroshilov, 2014). It, is, therefore, important for managers to understand different types of auctions. Understanding the essentials of such models enables the managers to determine the best auctioning model to apply in trade. It is also worth learning the laws governing the auction process to avoid inconveniences that arise from irregularities such as bid-rigging.

 

 

References

Connor, J. (2014). Big Bad Banks: Bid Rigging and Multilateral Market Manipulation. SSRN Electronic Journal.

Khoroshilov, Y. (2014). Signalling in Takeover Auctions with Flexible Reserve Price. Managerial And Decision Economics, 36(8), 499-507.

Le, P. (2018). Pareto optimal budgeted combinatorial auctions. Theoretical Economics, 13(2), 831-868.