Assignment Unit VI:

Essay
MBAV 6053 - Economics for Managers
Columbia Southern University
Huynh Dong Ha
1. Explain the difference between oral auctions and second-price auctions, including how

they work and their results.

- Oral auction: In oral or English auctions, also known as ascending open bidding, which

starts with an auctioneer announcing the proposed opening or starting bid for the item to

be sold. The bidder submits an incremental bid until only one bid is left. The thing is

granted to the last left-over petitioner. If no bid is exceeding the stand price, the vendors

make a proclamation the vanquisher, and the stuff is vended to the bidder equal to their

command. If the starting valuation is not proved or there is no businesswise equitable bid

by purchaser, the dealer can convey the item to the market. In particular is the eBay

auction. When a product is sold on eBay, buyers are allowed to bid within a specified

timeframe. The consumer with the upmost bid eventually of the bid becomes the

conqueror and possess the stuff after payment their current bid.

- Second-price auctions: A Vickrey auction or second-price auction is a type of sealed-bid

auction in which bidders send their sealed bids devoid of awaring the bids of other

members. The item is endowed the superlative bidder, but the champion confers the

second-highest bid. Bidders do not know information of each other, then they cannot

collude, and their information is also protected. In our first example right here, we are

going to say that there are three different bidders who bid. So, the first bidder will say has

bid $7, the second bidder has bid $6, the third bidder has bid $5.50, and let us say there is

a bid floor of $5. In this auction, bidder #1 is going to win the auction because they bid

the highest. But they are not going to end up paying the $7 that they bid. They are only

going to pay one cent higher than the second highest bid, which would be $6.01.
2. Use the expected value information to illustrate how having more bidders in an oral

auction will likely result in a higher winning bid.

- Presuming that an oral auction among these two customers. The superior bid, enumerated

in the last pillar below, is indistinguishable to the second-highest value. If the

saleswoman is fortunate, she will get two profitable bidders, and the victorious bid will

be $90. Nonetheless, this consequence arises only 25% of the time. The other 75% of the

time, the second-highest value is just $80. The anticipated earnings of the auction is the

weighted average of these two results, where the weights are the anticipation of each: $90

x 0.25 + $80 x 0.75 = $82,5. As against a fixed price of $90, the auction in this etui gives

the salesperson higher forecasted revenue.

Bidder 1($) Bidder Probability Winning

2($) Bid ($)
80 80 0.25 80
80 90 0.25 80
90 80 0.25 80
90 90 0.25 90

- Assuming that three bidders display at an auction. They could be either upscale ($90) or

devalue ($80) bidders. The feasible aftereffects of the auction are recorded in second

table below. If the auctioneer is advantageous, two or more high-value bidders will

illlustrate, so the superior bid is $90. But this occours only 50% of the time. The other

50% of the time, we envisage at most one expensive bidder, so the winning bid is $80.

Predict reward is $90 x 0.50 + $80 x 0.50 = $85.

Bidder Bidder Bidder 3($) Probability Winning

1($) 2($) Bid ($)
 80 80 80 0.125 80
90 80 80 0.125 80
80 90 80 0.125 80
80 80 90 0.125 80
90 90 80 0.125 90
90 80 90 0.125 90
80 90 90 0.125 90
90 90 90 0.125 90

3. Explain how the number of bidders in a common value auction affects the outcome

of the auction. Relate this to the effect on price in different market structures based

on the number of producers.

In conventional value auctions, contractors compete for an item of equal value for

everyone. Usually, the value of an item is uncertain, and the bidder makes a decision

based on estimates of the true value, usually observed only after the auction has ended. A

quantity of bidders in a common value auction influences the aftermath of the auction.

[ CITATION Mat84 \l 1033 ]challenges the wisdom that the auction prices increase with the

number of bidders. In the first auctions with shared values, [ CITATION Mat84 \l 1033 ]

shows that an increase in the number of bidders can cause individual bidders to lower

their bids for more people. Bidding can exaggerate the winner's curse problem. In initial

auctions with symmetrical and linked separate valuations, [ CITATION Pin05 \l 1033 ] show

that some bidders may lower their bids because they fear after winning the competition.

will be weaker than expected. Due to the association, this effect increases with the

number of people who bid.

When bidders make guess based upon other bidders' conjecture, the number of bidders

induces the conclusion of the competitive sale. When there is a low number of bidders, a

bidder may trust his appraisal is acceptable. However, when the number of bidders is
 large and most of them have a much different estimate from the contractor's estimate,

then the contractor will make an adjustment to his estimate, which is why will influence

the result of the sale by bid.

Economic market structures can be grouped into four categories: perfect competition,

monopolistic competition, oligopoly, and monopoly.

- In a perfectly competitive market, there are many buyers and many sellers: In this market,

there are many businesses operating independently of each other. Each business and

buyer are so small that it cannot affect the market price of the good or service. Products

offered for sale by competing firms are identical, both in terms of physical attributes and

perceptions of buyers, so buyers prefer not to prefer a particular enterprise's products

over that of firms. other. The freedom to enter and exit the market is not to have any

barriers or obstacles to the entry of new businesses or the self-exit of the market of firms

operating in the market. Thus, the auctions are virtually unfeasible in this kind of market

structure.

- In monopoly is the market state where there is only one person who sells and produces a

product with no closely related substitute. This is one of the forms of market failure, an

extreme case of a market lack of competition. This item is unique and replaceable. The

monopolist can use prejudiced price to get the most out of auctions that are quite ordinary

in this category of market.

- Oligopoly is a market structure in which there are a small number of firms, with no

company able to eliminate the significant influence of others. Concentration ratio

measures the market share of the largest companies. An oligopoly includes two or more

companies. There is no exact limit for the number of firms in a monopoly, but the number
 must be low enough for the actions of one company to have a significant effect on others.

There are several large companies serving the market. A monopoly has pretty market

power and uses it to differentiate prices during their auction events. However, an auction

company must consider the responses of other enterprise to price hatred throughout their

auction occurrence. Collusion between organizations can help them obtain more

satisfactions in the market.

- In monopoly competition is characteristic of an industry in which many agencies provide

indistinguishable products or services, but not as a flawless replacement. Barriers to entry

and exit in an oligopoly are low, and a firm's decisions do not directly affect competitors.

In monopolistic competition, the ability of enterprises to touch prices is not elevated as

there are many opposing corporations in the market. Auctions are arduous to organize

because products can vary and there are many substitutes. Bidders in auctions have high

power and can divulge their value to low-budget things.

- Auctions lead to outcomes where buyers reveal their value for the products being

auctioned. To successfully price discriminate, firms often rely on buyers revealing their

value for the products. Explain the conditions necessary for firms to be able to price

discriminate.

A firm’s ability to price discriminates in an auction depend on some of necessary

conditions. Price discrimination can only happen if determined conditions are reached.

The bidder’s demand for the item should be price inelastic. Inelastic pricing is very

valuable for organizations and is vital in understanding how they should particularize a

pricing planning. Inelastic prices give firms more flexibility with prices because changes

in demand are essentially the same whether prices rise or fall. If the price goes upward or
downward, the companies can envisage the bidder's request buying habits to stay

predominantly constant. Given the relationship between the price demand elasticity (e)

and the price P as follows:

1/|e| = (P-MC)/P

Companies must be able to identify different market segments, such as domestic bidders

and industrial bidders, and different segments must have different price elasticities

(PEDs).

Markets must be kept detach, over time, physical distance, and nature of use, such as the

Institutional version of Microsoft Office, at an inexpensive. Time-based pricing - also

called dynamic pricing - is progressively common in goods and services sold online. In

this case, the price may change according to the second, based on the real-time demand

related to the consumer's online activity.

There is no outflow betwixt the two markets, as a result of which bidders no more buying

low on the malleable sub-market and then trade them to others on the inflexible sub-

market for a pricey price.

The company must have monopoly power to some extent. The item being auctioned must

be unique and less replaceable. Firms will not be able to differentiate prices if the item is

identical or has multiple substitutes. By replacing an item with a substitute, the bidder

will disclose a low value for the auctioned item.

References:

Matthews, S.A., 1984. Information Acquisition in Discriminatory Auctions. In: Boyer,

M. Kihlstrom, R.E. (eds.) Bayesian Models in Economic Theory, pp. 181-207.

NorthHolland, New York. https://nicolapersico.com/files/infoacqauctions.pdf

Pinkse, J., Tan G., 2005. The Affiliation Effect in First Price Auctions. Econometrica 73,

263-277. https://dornsife.usc.edu/assets/sites/1242/docs/apv-sup77.pdf.

Froeb, L. M., McCann, B. T., Shor, M., & Ward, M. R. (2018). Managerial economics

(5th ed.). Cengage Learning. https://online.vitalsource.com/#/books/9781337468015