Auctions and Dynamic Pricing.

Auctions and Dynamic Pricing.

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English and Dutch Auctions

English auctions have their buyers place bids for those they are interested in, and the bids keep rising until the highest bidder places their bid. Where the bid is higher or equal to the reserved price, the auctioneer, who is also the seller, declares the winner whose standing bid equals the bid of the auction gets the product (Malekovic et al., 2020). Some of the English auctions may fail to meet the minimum reserve price for a specific item. When this happens, the seller removes the product from the auction and moves on to the next auction. In contrast, the Dutch auction is an auction method where an item’s price is set according to the bids placed. Malekovic et al. (2020) allude that auctioneers choose the highest price as per the bids placed by buyers in the auction. In the Dutch auction, buyers often place recommendations based on the amount they are willing to spend on the product based on its price as well as quantity. Price reduction in this auction is made until the bidding prices do not fall below the product’s reserve price Auctions and Dynamic Pricing.

Sealed-bid First Price Auction and the Vickrey Auction

The sealed-bid first-price auction is commonly known as the blind auction and describes the type of auction where all buyers place their bids simultaneously without the knowledge of the bids placed by the rest of the buyers (Wang & Guo, 2017). This means that each buyer only knows the bid they have placed because the bids placed by other buyers are anonymous to them. Conversely, the Vickreyauction is a form of sealed-bid first-price auction where each buyer places their bid, and the highest bidder wins the auction (Galal & Youssef, 2019). Nevertheless, the price paid is usually the second-highest bid of the auction.

Surge Pricing and Congestion Pricing

According to Besbeset al. (2020), surge pricing refers to a firm’s action to increase and decrease its prices based on demand. When demand is high, the management decides to increase the prices of its goods or services, and when the demand weakens, prices are reduced drastically. In contrast, congestion pricing refers to the dynamic pricing approach where prices are increased without necessarily increasing the supply of goods (Lehe, 2019). This is a pricing strategy used to regulate demand. Both of these strategies can be identified in the transportation sector. Lyft is known to have implemented surge pricing. During rush hours, Lyft customers may find their prices boosted by up to 50%, which means a ride that would have cost the client $20 costs $10 more, bringing the total cost to $30. Congestion pricing is also employed in the transportation industry to decongest urban areas and reduce air pollution caused by vehicles. The hotel industry utilizes congestion pricing, where prices are hiked during major holidays. The main similarity between surge and congestion pricing is that both have their prices increase with demand Auctions and Dynamic Pricing.

Examples of Auctions

Companies utilize auctions as a means to recognize the underlying real value of their goods. Auctions provide more opportunities for increased purchases and rising promotional opportunities that cannot be acquired when relying on other retailing techniques. Auctions are also initiated to foster repeated visits. Online companies play a crucial role in the auction industry since they help firms involved in auctions increase their audience by identifying the patterns of bidding and recognizing potential buyers. Some of the most common auctions include absolute, minimum bid, and reserve auctions.

  1. Need for an Auction in the Product/Service

Auctions have become the heart of the product-service industry because they provide dynamic methods to maximize product-service value in the buying and selling goods. Those who have been in the auction industry have gained sufficient experience to understand and blend into the auction-style to enhance the firm’s price and result in better selling terms. Notably, buyers usually provide their prices, based on how they perceive the products. During a given auction, buyers are frequently searching for not only the products, but also companies associated with them. Every buyer is different and considers each product an additional value (Gill, 2016). This means one buyer may consider a given product to be of a higher significant value. In contrast, another buyer will consider the same product as a product with a lower value because of its features Auctions and Dynamic Pricing.

  1. How the type of auctionused to uncover the value of the product or service

Different types of auctions can be utilized by an auctioning firm, such as English or Dutch auction. However, the best type of auction for a product or service is the absolute auction. An absolute auction is an auction where the auction item is sold to the buyer who bids the highest (Kang & Unwin, 2020). This type of auction attracts many bidders’ attention as they compete to get the product by bidding more elevated than their opponents. This increases the probability of having all items sold within the auction. As compared to other cautions, the absolute auction is best at uncovering value. This is because of its competitive nature and the fact that there is no given value other than the reserve value below which a product cannot be sold in the market.

Advantages and Disadvantages of Auctions as Revenue Generators

The most common advantage of using auctions for revenue generation for not-for-profit organizations is uncovering the real value of a product or service. Auctions are places where the real value is discovered through constant bidding, depending on the type of auction procedure. Kaur et al. (2016) claim that auctions are also beneficial because of their non-disclosure policy. Considerably, disclosure is usually controlled in an auction, which reduces the information available to the buyers. For example, in most cases, only the reserve price is known by the buyers, unlike other methods utilized by the not-for-profit organizations that disclose a lot of information to its buyers.

In contrast, utilizing auctions for not-for-profit organizations may not always be an appropriate decision for several reasons. Auctions are generally expensive and also contain hidden costs. Not every cost is disclosed within an auction, which leaves a lot of unansweredquestions concerning the hidden costs that were involved in the auctioned products. It is expensive since venues have to be identified and organized to attract the attention of buyers or donors within the charity event, which requires an extra cost to facilitate the decorations, among other features (Kaur et al., 2016). In addition to money, bidding is time-consuming since different buyers are always willing to place their bids on products, creating competition. Due to this competition, people may end up paying a higher amount that is significantly higher than the real value of the product Auctions and Dynamic Pricing.

Use of auctions by for-profit companies to uncover value and increase revenues

The auctioning process can be used to uncover values as well as increase profitability. Nonetheless, the auction process needs to be carefully thought before beginning the process. This process starts with identifying the best bidding strategy (Carter et al., 2017). Many types of auctions can be considered when attempting to increase revenues. All the same, irrespective of the method selected, the biding process must result in increased revenue. The best method should be the one that encourages buyers to compete among themselves. This means the best approach would be the English auction approach. In this auction, buyers will be willing to place their bids against each other. Bidding only stops when the buyers can no longer place higher bids and the buyer with the highest bid ends up taking the product home. Once the method has been identified, the next step involves determining how to conduct the process (Li & Das, 2019). Times have changed, all thanks to the advancement of technology. Technology connects people and spreads information, fast as compared to traditional methods. An online auction would be best because it can attract many people, which increases the chances of increasing revenues through competition among buyers. The principal advantage of an online auction is it breaks the barriers created by geographical locations. Once the auction occurs, products can be delivered to the respective buyers as per their winning bids. The online platform increases the products and services to be auctioned because auction companies are brought together and may combine efforts (Ow et al., 2018). Unlike the traditional auction method, the patterns of buyers within an auction can be studied to determine the best method to use when auctioning products and services in the next auction. Overall, the best way to increase revenues and uncover value is through selecting an auction that fosters competition as well as attracts a large number of buyers, such as the online platform that can have buyers from any part of the world Auctions and Dynamic Pricing.

References

Besbes, O., Castro, F., &Lobel, I. (2020). Surge pricing and its spatial supply response. Management of Science.

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.

Galal, H. S., & Youssef, A. M. (2019, February). Trustee: full privacy-preserving Vickrey auction on top of Ethereum. In International Conference on Financial Cryptography and Data Security (pp. 190-207). Springer, Cham.

Gill, D. W. (2016). Context matters: the auction market and due diligence: the need for action. J. Art Crime, 15, 73.

Kang, B., & Unwin, J. (2020). All-Pay Auctions with Different Forfeits. arXiv preprint arXiv:2002.02599.

Kaur, P., Goyal, 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.

Lehe, L. (2019). Downtown congestion pricing in practice. Transportation Research Part C: Emerging Technologies, 100, 200-223.

Li, Z., & Das, S. (2019, July). Revenue enhancement via asymmetric signaling in interdependent-value auctions. In Proceedings of the AAAI Conference on Artificial Intelligence (Vol. 33, pp. 2093-2100).

Malekovic, N., Goutas, L., Sutanto, J., &Galletta, D. (2020). Regret under different auction designs: the case of English and Dutch auctions. Electronic Markets, 30(1), 151-161.

Ow, T. T., Spaid, B. I., Wood, C. A., & Ba, S. (2018). Trust and experience in online auctions. Journal of Organizational Computing and Electronic Commerce, 28(4), 294-314.

Wang, C., & Guo, P. (2017). Behavioral models for first-price sealed-bid auctions with the one-shot decision theory. European Journal of Operational Research, 261(3), 994-1000.