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Unit VII Journal: Value of Auctions in the Economy ECO 6301, Economics for Managers
Unit VII Journal: Value of Auctions in the Economy
Introduction
Auction is a competition and bargaining against others in purchasing items. Instead of
selling items with price tags, the competitors bid against each other, and the winner with the
largest bid is awarded the item. Although sometimes exaggerated, auctions can help reveal
the actual value of particular objects and help set their true prices.
Difference between Oral Auctions and Second-Price Auctions
Oral auction is the most common and is also known as the English auction. This type of
auction involves many bidders bidding for an item in increasing amounts until a final bid
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remains. The bidding continues as long as the second-highest bidder still bids and only ends
when they drop out of the bid (Froeb et al., 2018). Therefore, the auction depends on the
bidder with the lowest bid, meaning that the highest price takes it only after the losing bid
drops.
A second-price auction is a type of auction in which there is a sealed-bid auction. This
calls for bids whereby the bidders do not know the amount staked by other bidders.
Therefore, only the highest bidder is awarded based on their original stake (Kim et al., 2022).
For instance, if three individuals placed a stake of 50, 100, and 150 US dollars, the highest
bidder will take the item. This differs from the oral auction, whereby an item worth 150 US
dollars could be bid more than this because individuals who are more interested in the item
place the highest offers.
Expected Value Information and Higher Bidding Outcomes
The expected value information is the average outcome based on the variable-weighted
outcomes. The weights in this context refer to the possibilities of the expected outcomes, with
the probabilities summing up to one. Therefore, the expected value is determined by the
number and amount of bids existing, whereby the highest bid is near the actual value of an
item. Therefore, having more bidders in an auction means that the bidding prices and
probabilities increase, leading to higher prices winning. A higher number of bidders increases
the competition (Froeb et al., 2018). For example, in the oral auction, an item worth 100
dollars could be sold at 400 dollars, depending on the capability of the competing parties.
How the Number of Bidders on Common Value Auction Affects the Outcomes
Common value auction is where the bidders have a private value for the item being
auctioned. They explore the potential value of the product using the common or known value,
and provides an estimate. Those providing an excessive estimate compared to the actual value
Unit VII Journal: Value of Auctions in the Economy ECO 6301, Economics for Managers
Unit VII Journal: Value of Auctions in the Economy
Introduction
Auction is a competition and bargaining against others in purchasing items. Instead of
selling items with price tags, the competitors bid against each other, and the winner with the
largest bid is awarded the item. Although sometimes exaggerated, auctions can help reveal
the actual value of particular objects and help set their true prices.
Difference between Oral Auctions and Second-Price Auctions
Oral auction is the most common and is also known as the English auction. This type of
auction involves many bidders bidding for an item in increasing amounts until a final bid
, 2
remains. The bidding continues as long as the second-highest bidder still bids and only ends
when they drop out of the bid (Froeb et al., 2018). Therefore, the auction depends on the
bidder with the lowest bid, meaning that the highest price takes it only after the losing bid
drops.
A second-price auction is a type of auction in which there is a sealed-bid auction. This
calls for bids whereby the bidders do not know the amount staked by other bidders.
Therefore, only the highest bidder is awarded based on their original stake (Kim et al., 2022).
For instance, if three individuals placed a stake of 50, 100, and 150 US dollars, the highest
bidder will take the item. This differs from the oral auction, whereby an item worth 150 US
dollars could be bid more than this because individuals who are more interested in the item
place the highest offers.
Expected Value Information and Higher Bidding Outcomes
The expected value information is the average outcome based on the variable-weighted
outcomes. The weights in this context refer to the possibilities of the expected outcomes, with
the probabilities summing up to one. Therefore, the expected value is determined by the
number and amount of bids existing, whereby the highest bid is near the actual value of an
item. Therefore, having more bidders in an auction means that the bidding prices and
probabilities increase, leading to higher prices winning. A higher number of bidders increases
the competition (Froeb et al., 2018). For example, in the oral auction, an item worth 100
dollars could be sold at 400 dollars, depending on the capability of the competing parties.
How the Number of Bidders on Common Value Auction Affects the Outcomes
Common value auction is where the bidders have a private value for the item being
auctioned. They explore the potential value of the product using the common or known value,
and provides an estimate. Those providing an excessive estimate compared to the actual value
