An interesting take on simultaneous ascending auctions

In class we recently discussed the English style auctions, very similar to the simultaneous ascending auctions. These auctions were introduced by the FCC in 1994 for use in spectrum auctions. More recently they have been used for something that is a lot more important to our everyday lives. Companies bid over the right to sell third generation internet or as most of us know it by 3G. The government uses this specific method to assign spectrums to firms for a very specific reason, high profits. People will pay money if they believe that what they are paying for will help them make more money in the future, a trade-off more or less, pay money now make money later.

Simultaneous ascending auctions yield the highest profits out of all the auction types, which is why that type of auction was put into practice here. Bidders are price takers for the most part. They are constantly analyzing after each bid is placed to try and figure out the best possible price for the product. Bottom line if the sponsor of the auction is trying to make a profit simultaneous ascending auctions are the best way to go. These auctions are extremely useful in all types of business. One of the most common examples would be Ebay. While trolling the web I came across a new type of site very similar to Ebay. These auctions were referred to as penny auctions. Bidders start at zero and bid up to the price they feel the product is worth. However a bidder can only bid up by one cent each time by pressing bid. So ipads and televisions were being sold for hundreds of dollars less than they should have but these companies are still making profit off these auctions, how are they doing this? Each time a bidder presses bid the company gets paid a tiny bit. But every bidder can only up the bid by one cent every time so for an item that is sold for say $200.84 the “bid” button is pressed over 20,000 times. Only the consumer who wins the item gets the big discounts though and hundreds of thousands of people are bidding and losing money. This idea reminds me of embezzlement the company is taking pennies form thousands of people and making tons of money, a very clever take on auctions.

Sources
http://www.consumerreports.org/cro/2011/12/with-penny-auctions-you-can-spend-a-bundle-but-still-leave-empty-handed/index.htm
http://works.bepress.com/cgi/viewcontent.cgi?article=1037&context=cramton

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One thought on “An interesting take on simultaneous ascending auctions”

  1. The penny auctions you described are really interesting. Most of them have a countdown on the auction that is reset at 10 seconds after every bid. So if you bid, and no one bids in the next 10 seconds, you win the auction and pay the price you won it at. But if someone does bid in the 10 seconds, they are in the lead and get to hope no one bids in the next 10 seconds. While you are in an auction, you can see the other bidders and their auction history.

    The best bidders use their public history to their advantage. They overbid like crazy for a few items ($50 for a $15 gift card) and people see that they are willing to overbid. Competitors start backing off and these power bidders start winning iPads and laptops for $20.

    If you’re willing to spend a lot for the first few items, I think the penny auctions can pay off after a few months (assuming you sell the items you win).

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