Northwestern Social Networks 101
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Reverse Auction

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Post  byroncheng Sun May 24, 2009 11:39 pm

https://www.gemstv.com/aboutus/about-home

I happened on this tv show where they sell jewelry using a differnet type of auction. THey start with a high price and then slowly drop the price. People can call in to buy the jewelry at any price, but they only pay the price the last piece of jewelry goes at.

Ex: 5 rings are on sale, with a sticker price of 5000.
when price is 1000, two are sold
when price is 700, two more are sold
last one is sold at 450.
Then, everyone pays 450.

It's interesting because this is similar to the second price auction - though in this case, it's more like lowest price auction. This auction wouldn't work going up, becuase nobody would want to bid high - it's socially advantageous to bid low. This reverse auction format forces people to have a price floor when bidding, and the limited quantities pressure people to buy the jewelry. People want to wait because the price might go lower, but they dont want to wait becuase they might miss out.

I wonder if there are other things that this auction would work for.

And I don't shop for gemstone jewelery. Really.

byroncheng

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Join date : 2009-03-31

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Post  Matt Dolph Sun May 24, 2009 11:52 pm

This type of auction is also a great example of price of anarchy in work. In a socially optimal world no one would bid until the last second when all 5 of the rings as in the example would sell for 1 dollar (or whatever the lowest price would be). But due to people thinking in their own interest of getting the item and not the general profit of the network involved in purchasing we see the price is much higher showing a terrible POA for an auction of this type.

Matt Dolph

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Post  patrickmccoy Sun May 24, 2009 11:58 pm

That's really interesting to think about. I wonder how essential the good is to people plays into the final price that the good sells for. It would also be interesting to see how the starting price had an effect on what the final price of the good was too.

patrickmccoy

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Post  Tyler Davidov Mon May 25, 2009 12:38 am

This is a reverse auction website that people can use which also talks about the benefits of reverse auctions.
http://www.oltiby.com/

Reverse auctions are very interesting ways to buy goods and services. In business, reverse auctions are used often as well. If companies are competing for service rights for a buyer, essentially, the companies are competing for the lowest price possible to be able to exclusively provide a service for the buyer. The reverse auction is basically the opposite of a regular auction. There are many sellers and one buyer in a reverse auction. There are two main benefits of a reverse auction. One is that you save money by having this auction rather than purchasing a particular item in a regular auction or in person. Also, there is limited corruption in this type of an auction. The lowest price will win the auction, and other factors will be limited in terms of effects on the buyer's relationship with the seller.

Tyler Davidov

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Join date : 2009-04-05

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Post  James Yeung Mon May 25, 2009 12:48 am

This idea is a very interesting one. It may seem like this is good for the buyers because it is maximizing their payoff, but the company who is selling can also set a virtual floor price by calling in themselves. Although that should be illegal, their terms and conditions might allow that. Similarly, in a regular First-Price or Second-Price auction, the seller can also have "fake bidders" that ensures the item sells for a minimum price.

James Yeung

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