Economic Concepts - Auctions (Video)

Hi Everyone,

Watch the video using the link below:

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This short video briefly explains a few types of auctions. These auctions include the English auction, Dutch auction, standard sealed bid auction, and second price sealed bid auction.

English auction

When people think of an auction, they typically think of an auction that involves publicly bidding on items. There will be a starting bid. Someone will bid above the starting bid. Then someone else will bid above that bid. Eventually, a bid will be reached that nobody wants to bid above. The auction then ends and the person with the highest bid is the winner. This type of auction is known as an English auction. The video contains a silly example of an English auction for a Teddy Ruxpin. I almost accidently smashed Teddy, see gif below.

Dutch auction

A Dutch auction works in the opposite direction to an English auction. Instead of starting with a low bid with people bidding upwards. The Dutch auction starts with a high price which is gradually reduced until someone says ‘stop’. The bidder will stop the bidding when the price is below the value that they place on the item up for auction. The bidder needs to decide how far below their value they are willing to go.

Standard sealed bid auction

The standard sealed bid auction typically requires bidders to place their bids into sealed envelopes. The highest bid wins the auction. The bidder is required to pay the value that they bid.

Second price sealed bid auction

The second price sealed bid auction, like the standard sealed bid auction, requires bidders to place their bids into sealed envelopes. The highest bid wins the auction. The bidder is required to pay the second highest bid rather than their own bid.

Common value vs private value auctions

Private value auctions occur when the bidder only knows how much they value the item that is being sold and not how much the other bidders value that item. Every bidder can be assumed to have a different valuation for the same item. The four examples presented in the video are assumed to function as private value auctions.

Common value auctions occur when everyone has the same value for the item being sold but are not aware of this value. For example, a box containing money. There is a certain amount of money in a box but nobody knows the exact amount of money.

Key points from the video

The video explains the different types of auctions as well as the different strategies that should be used for each auction type. For English and second price sealed bid auctions, the bidder should bid the value they place on the item. For Dutch and standard sealed auctions, the bidder should bid below what they value the item but not too far below so that they lose the auction. The bidder should never bid above what they value the item.

Thank you for taking the time to watch my video.

For more information on auctions you can read my original post at the following link:

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