Question

Question 4

a.

From the point of view of auctioneers (sellers), rank of the sales revenue obtained by adopting different types of auction, (i) English, (ii) First-price, sealed-bid, (iii)Second-price, sealed-bid, (iv) Dutch, sort from the highest to the lowest.

b.

From the point of view of bidders (buyers), among the different types of auction, the winner's curse is most pronounced in which type of auction? Why? As a manager, what you can do to mitigate the problems？

Answer 1

a. Highest to lowest

English - since the bid can keep escalating till there are no more higher bids

First price sealed bid - the highest bidder gets the good without anyone else having an opportunity to bid higher (in a second round)

Second price sealed bid - the highest bidder gets the good but at teh price of the second highest bidder

Dutch - successive bidders bid lower than prior bid

b. Since it is the English auction which results in the highest price paid by the winning bidder it also has the highest likelihood to lead to winner's curse. The bidder needs to keep their emotions and ego aside when participating in English auction to ensure that they don't end up bidding higher than the intrinsic value of the good they are bidding for