Running head: CASE STUDY 1: AUCTIONS-SUMMER 2019 1

Case Study 1: Auctions

Name of Student

Name of Institution
CASE STUDY 1: AUCTIONS-SUMMER 2019 2

Case Study 1: Auctions-Summer 2019

1. There are many types of auctions each with strengths and weakness at uncovering the

real price/value of an item. Compare and contrast:

a) The English and Dutch auctions; and,

The English auction begins with the auctioneer announcing the opening bid for the items

to be sold. Buyers interested in the item place bids and the auctioneer waits for the highest

bidder. In case there is no higher bid than the standing bid, the auctioneer announces the winner

and the winner of the bidder whose standing bid equals their bid gets the product. If no buyer

meets the minimum reserved price, the auctioneer removes the item from the market. The Dutch

auction, on the contrary, is a method of product selling in which the price is set after considering

all the bids to decide the highest price for selling the product. The investors place the bid for the

amount they are willing to buy based on price and quantity (Adam, Eiders & Teubner, 2017). The

price of the product is reduced until it gets a bid that does not go below the reserved price.

b) The sealed bid first price auction and the Vickery Auction.

The sealed bid first price auction is a type of bid also called blind auction. All interested

buyers place their bids simultaneously and do not know the bids placed by other interested

buyers. The winner is the person who placed the highest price. On the other hand, the vickery

auction is a type of sealed first bid in which buyers place their bids without knowing other

people’s bids. The winning bid is the price paid, which is the second highest bid. Buyers do not

asses what other buyers are bidding but they bid their true value. They bid the maximum amount

of money they are willing to pay.

CASE STUDY 1: AUCTIONS-SUMMER 2019 3

2. Concierge Auctions Limited sells very high end and unique properties worldwide using

an English style auction, selling to the highest bidder. They have been embroiled in multiple

lawsuits; see the link to the Wall Street Journal. Advise Concierge as to the weakness that

an English auction may have in uncovering a property’s value. Provide a recommendation

for at least one other auction type that may better uncover the value of unique real estate

properties.

One of the major weaknesses of the English auction is that it is shaped by the perception

of buyers on the item’s value. Because English auctions expose bidders price, it makes the

highest bidder to adjust price upwards in relation to the real value of the item. In the case of

Concierge Auctions Limited, the buyer may be influenced by the price of other buyers and

increase his bidding amount that does not reflect the real value of the property being auctioned.

Since the winning bidder is the one who bids the highest amount, bidders tend to stat with small

amounts and the winner does not bid his full valuations, which makes it difficult for the seller to

get the highest amount possible.

Recommendation on another auction type that can uncover the real value of properties being

auctioned.

Several alternative auctions types can be used to uncover the real value of properties

being auctioned. The best alternative in this case is Vickery auction because the bidder does not

get to know what other interested buyers are willing to pay for the same. Using this method,

Concierge Auctions Limited will ensure that bidders are not affected by other bidder’s amount

when bidding because the information is not available. This will translate to fewer lawsuits and

improve bidder’s satisfaction. The bidder will get a chance to make accurate and objective

judgement about the property’s value before making the purchase. In case he wins the bid, he
CASE STUDY 1: AUCTIONS-SUMMER 2019 4

will only pay for the second highest bid, which is less expensive than his bidding price. This

way, the price will more likely reflect the real value of the property being purchased.

3. Auctions are widely used in finance, e-commerce and in e-games. Identify three uses of

auctions by firms in finance, e-commerce and/or e-games. Explain the:

Firms use auctions to identify the real value of product, sell the product or service use

auctions and increase revenues Auctions are used to see high levels of repeated visits, more

purchases and increased opportunities for promotion compared to other methods of retailing.

Auctions provide a wide range of benefits for e-commerce and e-game retailers interested in

buying and selling for other traders. While some businesses choose to host private auctions for

the businesses, online companies may assist companies in enlarging their audience by looking at

biddings patterns of other auctions in order to identify potential customers.

a) Need for an auction in the product/service; and

The need for auction in the product-service cannot be under-estimated. Auctions provide

a strategic way of maximising the value of product-service when selling goods and services. The

experienced people have a way of tapping into the style of auction to improve the price of the

company and ensure better terms of selling. A buyer values the product or service being sold

based on the value they see, which can be determined in an auction. During an auction, many

buyers are looking for the product, the service as well as the company itself and each single

buyer has a different perceived value. One may see the product/service as the best fit while

another may see it as less attractive.

b) What type of auction is used and why that type of auction is appropriate for the

product/service.
CASE STUDY 1: AUCTIONS-SUMMER 2019 5

There are different types of auctions for product/service. The absolute auction is one of

the widely used type in which product/service is sold to the highest bidder. In this type of bid, the

product/service being auctioned has high chances of being sold because there is no minimum

price that the auctioneer is looking to achieve. This auction creates interest and competition for

the bidders. Other type of auction is the minimum bid auction where the bidding process starts

with a minimum price that the seller is willing to accept, also called the reserve price. The

minimum price before the bidding starts in advertisements and brochures and is announced just

when the process starts. This way, the seller ensures to be compensated for the product/service

with a price they are willing to accept. The must be chosen carefully to attract as many buyers a s

possible.

4. Auctions are also widely used to generate revenue for not-for-profit organizations. What

are the advantages/disadvantages of auctions as revenue generators for not-for-profit

organizations?

Auction as revenue generators for the not-for-profit pose several advantages and

disadvantages. Unlike other methods of selling use by not-for-profit organisations, auctioning

allows the organisation to control the process of disclosure by minimising the scope of available

information and ensuring that disclosure is tightly controlled. Auctions can be used to turn up

buyers, understand the real value of product/service and create opportunities to acquire the

business (Kaur, Goya &Lu, 2016). Besides, auctioning is one of the most effective methods of

determining the true value of the company product and services. The true value of the product

cannot always be determined by the assets possessed by looking at what buyers are willing to

pay during an auction. This method of proving the value of product/service has been tested and

proven for years.

CASE STUDY 1: AUCTIONS-SUMMER 2019 6

There cases where auctioning is not desirable. If the not-for-profit organisation is

complicated and the market is limited with few bidders available such that the cost of bidding is

high, the bidding process may not be worth it. External forces like competition consent

requirements, limited timescale and regulatory factors may harm the bidding process. Besides,

the bidders may also be disadvantaged by a psychological problem referred to as the winner’s

curse. The bidders can get excited and get caught in the frenzy of bidding competition and there

bid more than they would under careful valuation. The winner may therefore end up paying

money for a product or service whose real value is far below the amount they pay.

5. Suggest ways in which the company you work for, or the company which you aspire to

work for, can use auctions to better uncover value and increase revenue.

Auctions play an important role in uncovering the company’s value and increasing its

revenue. For the current company, few auctioning strategies can be used increase revenue and

discover value for products and services being offered. The first method is to choose an

appropriate method of bidding. Whether English auction of Dutch, the method must look at

different factors that may increase chances of increasing revenue. It is better to use English

auction because it allows buyers to participate amongst each other. This method has greater

potential for influencing buyer’s perception because they bid against each other. The seller

announces the prices and willing buyers make their bids until there is no participant left willing

to make a higher bid. The bidding process ends when the seller accepts the highest priced bid.

After deciding the best bidding method, the company must determine the best way of

caring out the process. Because digital technology has opened new ways of interacting and

conducting businesses, bidding online can be a good way of selling the company’s goods and

services without incurring the difficulties associated with traditional methods. Online auctions
CASE STUDY 1: AUCTIONS-SUMMER 2019 7

are conducted via the internet and give the company access to a huge global market (Carter,

Tams & Grover, 2017). Online auctions provide great potential to all types of business regardless

of the size or nature of the company. There is potential for higher rats of repeats, increased

opportunities for promoting the company and more purchases. Online auctions also provide

benefits for selling and buying from other businesses that interact during the bidding process.

The company may be able to help companies in improving the audience for auctions by

examining and analyzing patterns of bidding form previous online auctions.

CASE STUDY 1: AUCTIONS-SUMMER 2019 8

References

Adam, M. T., Eiders, 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.

Carter, M., Tams, S., & Grover, V. (2017). When do I profit? Uncovering boundary conditions on

reputation effects in online auctions. Information & Management, 54(2), 256-267.

Kaur, P., Goya, M., & Lu, J. (2016). A comparison of bidding strategies for online auctions using

fuzzy reasoning and negotiation decision functions. IEEE Transactions on Fuzzy

Systems, 25(2), 425-438.