• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Critique of Klemperer's 'Auction Design'

Extracts from this document...


Critique - Review Essay on: "What Really Matters in Auction Design", Paul Klemperer, Journal of Economic Perspective - Volume 16, Number 1 - Winter 2002, pp.169-189 I really like this article because I agree with most of what it says. Auctions, in recent times, have become very popular and I don't need to interview anyone about this, I just need to examine myself to find out. Over the past few years, to be brutally honest, I have been absolutely addicted to eBay.com, an online shopping site made famous by the way in operates. Not only are all transactions made online, which is very convenient, but the way things are sold is what makes the shopping experience at eBay so unique, and fun. As the article mentions, auctions (like eBay) can be potentially good for both buyers and sellers. An auction can involve many buyers, for instance the auction of a house, whereas in the olden days, a negotiation over a house was usually between two people (bilateral negotiation) today there can be many sellers all competing for the same prize. This is good for the seller because now there is much more competition for the prize, therefore the seller will think he's getting the highest price for the same item. ...read more.


However, another way to protect this competitive buyer is to make the winner anonymous. So now this seems like the perfect auction design, sealed bid auction, anonymous winner, but this design still has its pitfalls. Imagine you were the winner of the Nike shoes by sealed bid auction and you are anonymous, you paid $200 for them. However, later you find out that the runner-up bidder (the person with the second highest bid) only bided $50. It turns out that you bid and paid $150 more than you had to, this would be very humiliating and embarrassing for you. This can be a major problem I would imagine, however eBay has sort of managed to sort a similar problem out, you put the maximum your are willing to bid, if you win, you only have to pay $1 more than the runner up, that way you are the one willing to pay the most, yet you pay the least possible given the other competitors, this way, everyone stays happy. I think this is a really smart way to do it because not only can you almost assure yourself of winning, given you've got lots of money, but it means that you'll pay as little as possible for the goods. ...read more.


On eBay where you can make small incremental bids as low as 20� at a time at anytime (provided the auction has not ended), with house auctions really aggressive bidders can bid huge increments which tends to scare off everybody else and so that person dominates the auction and has an advantage. This predatory action can be avoided by allowing the auction price to only rise by little increments at one time, this is sometimes seen where the auctioneers job is to offer the crowd a winning price from which the bidders only need to raise their hand to signal that they accept the price offered, this in turn removes a lot of the predatory actions of a few. There are many other interesting points made by Klemperer, he really is a scientist when it comes to auction analysis and I really admire the work he has done. So for you future bidders, watch out the winner's curse and find out plenty of information about the thing you are bidding on, and don't get over-excited, this is very dangerous. Other than that, I look forward to reading more of Klemperer's articles. ?? ?? ?? ?? Michael Hinchcliffe (3191827) 1 ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level ICT in Business section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level ICT in Business essays

  1. Strategic Management of Ebay

    The business potential of these brick and mortar stores is estimated to grow into a $20-$25 billion dollar industry. Does Meg Whitman, on behalf of eBay want a piece of this pie?

  2. Richer Sounds

    Where was the first Richer Sounds store? The first ever Richer Sounds store was opened in 1978 at London Bridge Walk. This location was chosen simply because Julian Richer had heard about a small shop unit was to up for sale, near to the place he was working.

  1. EBay Inc. is probably the most famous on-line success story in existence. Its name ...

    The eBay community includes more that 62 million registered users and according to Media Metrix, is the most popular shopping site on the Internet when measured by total user minutes. Its members are from all over the world. eBay has now local sites that serve the United States, Australia, Austria,

  2. Apple Incorporation - Case Analysis

    Jobs was determined to create an un-intimidating computer that anyone could use and he pushed this strategic concept by introducing the Lisa computer complete with mouse, hand-controlled pointer, and displayed pictures that substituted for keyboard commands. The strategy shifts can easily be compared with the increase in the customer focus.

  1. Albany Lodge Guest House.

    * If this happened, what would the business do and why? * Most businesses are affected by changes in economic conditions, such as changes in interest rates, exchange rates, and the cost of raw materials. Which of these would affect you the most, and in what ways?

  2. Business Online

    percentage of a certain market a firm has control over/owns over rival competitive firms. It is imperative that in such a fierce and competitive market such as the groceries/retail market that Sainsbury's tries to reduce the percentage of the market that Tesco own who are the current market leaders.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work