Auction Pricing Strategies
- Compare and contrast surge versus congestion pricing. Provide a specific example.
- There are many types of auctions, each with strengths and weaknesses in uncovering the real price/value of an item. Compare and contrast how each of the following uncovers value and provide a specific example of how each uncovers value:
- The English auction and the Dutch auction.
- The sealed-bid first-price auction and the Vickery Auction.
- Auctions are widely used. Analyze an actual auction employed by each of the following:
- A state or federal government or an agency of a state or federal government.
- A for-profit business.
- Read the Letter from Senator Warren to Fed on Wells Fargo FHC Status Links to an external site.[PDF].
- Use a minimum of three quality resources to support your writing. Choose sources that are credible, relevant, and appropriate. Cite each source listed on your source page at least one time within your assignment.
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Auction Pricing Strategies
Comparison of Pricing and Auction Methods
Surge pricing increases prices when demand spikes, while congestion pricing reduces demand in crowded areas. Both strategies adjust prices based on demand, but surge maximizes supplier profit, while congestion aims to reduce overuse of limited resources.
English auctions start low and increase until the highest bidder wins, revealing willingness to pay. For example, eBay uses this method to determine fair market value. In contrast, Dutch auctions start high and decrease until a buyer accepts. This approach uncovers value quickly, often used in flower markets in the Netherlands. Both methods discover price, but English auctions highlight buyer competition, while Dutch auctions emphasize speed.
The sealed-bid first-price auction has bidders submit one confidential bid, with the highest winning. Government contracts often use this method. In contrast, the Vickery auction awards the item to the highest bidder but charges the second-highest bid. This encourages truthful bidding because bidders gain nothing from inflating offers.
Applications of Auctions and Wells Fargo Case
Governments often use spectrum auctions, where companies bid for licenses, ensuring efficient distribution of public resources. For-profit firms like Christie’s employ English auctions to maximize art prices. These mechanisms solve price discovery by matching goods with those who value them most.
If Wells Fargo’s consumer banking division were sold, an auction could set value. A sealed-bid second-price (Vickery) auction may be best, since it promotes honest bidding and ensures fair valuation. This method balances transparency with competitive price discovery, yielding a realistic market value for such a large division.
