Examining the Value of Auctions

Examining the Value of Auctions
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Examining the Value of Auctions
An auction is the process of buying and selling goods by offering them to the highest bidder. Goods have been sold through auctions from as early as 500 BC and this means of trade has nowadays become increasingly popular. Through auctions, one is able to sell used cars, paintings, collectibles, expensive wines and even the right to drill for oil on a piece of land. With the growth of technology, online platforms provide auctioneers with a stage to get buyers for any item that is on sale. This essay is a reflection on the value of auctions in an economy.
Most people believe that oral auctions are equivalent to second price auctions. In both cases, the bidder determines the final price of goods or services. Nonetheless, in order for these two types of auction to be equivalent they need to share most traits. Oral auctions are common whereas second price auctions are rare. In both auctions, the item goes to the highest bidder. However, in the oral auctions, the highest bidder pays exactly what they bid. This policy maximizes the potential of the revenue earned by the employer. Winner’s often face the ‘winner’s curse’ and unless one is extremely lucky, they will end up losing money. In the second price auctions, when one’s bid wins, they end up paying $0.01 above the second highest bid (Koutroumpis & Cave, 2017). In this auction, it is in one’s best interests to bid the highest amount that they are willing to pay because they will often end up paying less than that amount. In second price auctions, there is no chance of the ‘winners curse’. Additionally, second price auctions provide the bidder with anonymity since bids are placed in envelopes and submitted. However in oral auctions, bidders receive information as other people bid. The latter often returns higher revenue as people tend to raise their bids after seeing that the item on sale actually has a higher value than they initially thought.
In all auctions, every bidder has their own valuation of an object. In addition, the value of prices to each bidder varies. The presence of many bidders in the two types of auctions helps bring in a higher Expected Value. The Expected Value is the anticipated return of an investment in the near future. For instance, bidding may start at $ 0. Each bidder will have to name their price until the highest bidder takes the object home (Deltas, 2010). The presence of many bidders guarantees a higher Expected Value as each person will try to outbid the other and the object often overshoots it’s...