The auction represents a valuable aspect of the existence of the modern economy. Furthermore, an auction is a type of market trading in which the seller, in order to maximize profit, uses direct competition from several buyers present at the auction. It is worth noting that it is the seller who sets the starting price of the goods. This indicator increases with the course of the auction to a certain fixed level, which is calculated from the solvency of buyers. Moreover, this type of trade in goods has common features with the economics of markets. These features are the dependence of producers (participants) and the value of goods (bids) and price discrimination
Auctions are one of the forms of market relations, which occupy one of the most important places in the economy. These events specialize in the sale of real goods with strictly individual properties. The essence of such trade and its significance in modern conditions lies in the fact that auctions are mainly used for the distribution of a relatively limited list of goods. The study of various types of auction trading, more effective ways of conducting this process is important for the further successful development of this area.
To better understand this phenomenon, it is necessary to have an accurate understanding of it and understand the difference between its types. The first type of auction is called traditional (oral) or English. In this case, the seller actively accepts the growing price offers for the goods from a group of potential buyers (McGee & Levin, 2019). Moreover, all participants are aware of the highest price offered. The auction ends only when no bidder is ready to exceed the bid with the current maximum price. After that, the winning buyer receives the product at a price equal to the amount of the last offer. The main disadvantage of this type of bidding is that with such an organization, it is convenient for participants to collude. At the same time, its main advantage is that the winner is the participant with the highest score of the lot. In addition, during the bidding process, participants have the opportunity to learn information about each other, which makes the bidding more reasonable.
The main difference between the second price auction and the traditional one is its closeness. In this type of bidding, the winner is also the participant who offered the highest bid. However, the individual must pay the second maximum bid, that is, the price of the nearest competitor plus a predetermined surcharge. Both parties benefit from holding auctions of this type. Participants determine the real value of the lot for themselves and name it, without overstating it. The organizers, due to the fact that the participants eventually make higher bids than at the auction of the first price, also remain in the advantage. This model allows auctions to be held very quickly, so it is widely used online, in particular, when selling search advertising.
The number of participants has a direct impact on how the auction ends. Thus, an increase in their number leads to an improvement in trading results. This is due to the fact that in this case, more bets will be placed, the sense of competitiveness will increase and thus the goods will be sold at a more favorable price for the organizers. This can also be correlated with the formation of prices with a large number of manufacturers. In this case, with the growth of producers, the amount of cheap resources decreases. Therefore, the organization will use more expensive analogues, which will lead to an increase in the price of the product.
The results of the auction end with the fact that the participants themselves set the cost of the goods. Similarly, so that many organizations resort to the use of price discrimination, independently setting the value for the products they produce. The essence of this technology is that manufacturers form different prices of the same goods or services for different segments of consumers (Bonatti & Cisternas, 2020). The main condition of this policy is that the seller must be a monopolist in the chosen field. This is due to the fact that only such a situation can allow dictating prices.
The main conditions for price discrimination by an organization can also be considered that a monopolist seller should be able to differentiate buyers into groups. This process occurs relative to the elasticity of demand for a certain product. Only in this case, the manufacturer will be able to raise prices to those groups of buyers for whom this product is more important and for which they are willing to spend more. Moreover, for self-determination of prices, the main condition is that the goods cannot be resold, that is, the goods do not have the ability to change the market and buyers should be easily identified.
In conclusion, it is important to note that auctions are of particular value, as they work in cases where a normal market would not be so effective. This is due to the fact that they are often used for hard-to-sell goods. Despite this, they have a lot in common with the market economy. Therefore, at auctions, the number of participants has a direct impact on the final price of the goods. Moreover, this type of sale of goods has common features with the policy of price discrimination, when manufacturers independently set the cost of their goods.
References
Bonatti, A., & Cisternas, G. (2020). Consumer scores and price discrimination. The Review of Economic Studies, 87(2), 750-791.
McGee, P., & Levin, D. (2019). How obvious is the dominant strategy in an English Auction? Experimental evidence. Journal of Economic Behavior & Organization, 159, 355-365.