In previous literatures, ascending auctions were described as following, the auction starts by the auctioneer announcing a price and increases that price by time, bidders quit the auction when the price announced by the auctioneer is higher than the price they are willing to pay, the winner is the last person or the person who did not withdraw from the auction (Kagel and Levin 2008: 3, Easley and Kleinberg 2010: 250)
For further understandings, assume in an ascending price auction, the auction started with $500 which is the reserve price, one bidder placed $550, the second bidder placed $625, the third bidder placed $750, if no one bid anymore the third bidder will win and will pay his own bid ($750).
Moving to the descending price auctions or Dutch auctions as called sometimes. Descending price auction rules indicate that, the auction starts with a high price asked by the seller, unlike the English or ascending price auctions, the price keep declining until a buyer accepts to buy the item being auctioned (Cioni 2010: 3, Varian 2009: 317, Kagel and Levin 2008: 3).
Easley and Kleinberg (2010: 250) and Wolfstetter (1996: 370), agrees that in descending auctions the prices are decreasing or following a descending pattern till the buyer stops the auctioneer at a certain price that he is willing to pay by shouting “mine” or announcing that he is willing to pay that price. Easley and Kleinberg Added that the name “Dutch auction” origin is from Netherlands, where they used to sell flowers using descending price auction format.
For further understandings, assume being in a Dutch auction, but this time the auction started with $1,000 and no one showed interest in buying that item for the $1,000, the auctioneer decreased the price ...
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... member who is going to lose the auction intentionally is the main aspect that defines the extent of cartel sustainability. It sounds realistic that, if any of the cartel members finds not abiding by the cartel rules yield more profits, to cheat and not abide to those rules. Hence, a rational bidder will estimate the short term cash inflow yielded in the case of cheating and compare it with the long term loses that will be incurred as a result of not abiding with the cartel rules (Sternberg 1988: 354-357, Robinson 1985: 143-144)
Thus, it is said that bid cartels are possible and can occur. However, researchers are not sure whether that formed cartel will last for long or vanish quickly. For a stable cartel to be formed each cartel member must get high utility in return of his compliance and rank participating in the cartel as more preferable (Robinson 1985: 143-144)
Price is that which is given up in an exchange to acquire a good or service. Price is typically the money exchanged for the good or service. Blue Jays pricing structure is based on the perceived value of the game, the entertainment, the love of baseball, and the action, not just the money.
200% profit. The market value of a specific home when purchased is $300,000 and rises over a certain time to $350,000. The individual pays more than 2/3’s of the payments before foreclosure occurs. The specifics of the foreclosure are uncertain; however, this will not affect the resale of...
This organization belongs to the oligopoly market structure. The oligopoly market structure involves a few sellers of a standardized or differentiated product, a homogenous oligopoly or a differentiated oligopoly (McConnell, 2004, p. 467). In an oligopolistic market each firm is affected by the decisions of the other firms in the industry in determining their price and output (McConnell, 2005, P.413). Another factor of an oligopolistic market is the conditions of entry. In an oligopoly, there are significant barriers to entry into the market. These barriers exist because in these industries, three or four firms may have sufficient sales to achieve economies of scale, making the smaller firms would not be able to survive against the larger companies that control the industry (McConnell, 2005, p.
This price is set between the bid/asking price of $3.94/lb that included the delivery cost of $.60/lb and our reservation price of $3.15/lb. This is the price at which we hope to conclude our negotiation. 3. The reservation price is $3.15/lb, this is the lowest price that we will sell to Statler for the deal. This price represents a loss of about $0.20/lb, but this loss is approximately an $1,100 investment in publicity.
Fog, B. 1956. How are Cartel Prices Determined? The Journal of Industrial Economics. 5(1): 16-23
Even though monopolies are illegal, public corruption allows companies to form and continues to be a problem today. In an article published by the Los Angeles, Anh Do
Firms may be categorized in a variety of different market structures. Perfectly competitive, monopolistically competitive, oligopolistic,
Cartel is considered illegal in many countries because it gives the collaborating firms an unfair advantage over other competitor thus shielding itself from competitions. This reduces pressure for firms to continually improve its product or finding ways to efficiently produce them. This can bring long term consequence to the other stakeholders, the overall economy, consumer welfare, countries and region as a whole. The chart below further explains the effects on the economy. Since, the cartels works similarly to monopoly, the theory is similar. The left side of the chart shows the short run of the firms in cartel. The profit maximizing price and quantity would be where the marginal cost intersects the marginal revenue line. The price of the monopoly would be the horizontal line that touches the average revenue line. As opposed to perfect competition, the producer and consumer surplus are equal. However, in the case of collusion the producer surplus increases while consumer surplus reduces. The shaded yellow area is the addition gap added to the producer surplus. It is the profit that benefits the
Absolute lowest price for an item can be most important for many consumers but not all consumer as it depends on factors such as income distribution and product type.
below, if firm X decides to lower its price from B to D, sales should
To test these models in collusion, bidders interact in a three-stage game and can be of type risk neutral, strong or weak. In the first stage, the strong bidders vote for or against forming a cartel and a cartel is only formed if they all agree. When they form a cartel they incur a cost. In the second stage, if a cartel is formed the strong bidders interact in a pre-auction knock-out mechanism where all bidders submit a sealed bid and the highest bidd...
...the potential interference of the market into the legal trade circle may be shaped up to match the interest of the involved traders.
At prices lower than the market price, e.g. 2Op, the quantity demanded will exceed the quantity supplied, giving rise to a condition known as a sellers’ market. This is illustrated in Figure I I .3.
Black markets are the underground markets that operate outside “the legal system in which either illegal goods are sold or legal goods are sold at illegal prices or terms.” Black markets are characterized with high prices, violence, and defective products. The high prices in black markets especially in comparison to legal markets, comes from the risk that the supplier is undertaking. Suppliers are taking the risk of “arrest, possibility of a fine or prison sentence, and so on.” The violence that many times characterizes black markets stems from the fact that there are “no legal channels for the peaceful settlement of disputes” and the party that does not follow through with the agreement must be made to follow the agreement, many times through the use of threats or force. Black markets undermine and undercut legal markets making for a weaker overall system in markets where black markets are more common.
Machiraju (2002,75) explains the basis of this concept in these words, “In competitive markets with a large number of buyers and sellers and low cost access to information, exchange adjusted prices of tradable goods and financial assets must be equal worldwide. This law of one price is enforced by international arbitrageurs who buy low and sell high and prevent all deviations from equality. Four theoretical economic relationships emerge from arbitrage economic activity”.