“the Effect of Different Instruments in Auctions on the Economic Welfare”

Table of contents

1. Introduction.............................................................................................................3

2. Instruments which can be used in auctions...........................................................3

2.1 The secret and open minimum price

2.2 Minimum bid

2.3 Shill bidding

2.4 Participation fee

3. Minimum prices and the supply and demand model...........................................5

3.1 Excess supply

3.2 Surplus

3.3 Minimum price and the effect on the economic surplus

4. Minimum prices in auctions...................................................................................7

5. Conclusion................................................................................................................7

References...............................................................................................................9

List of figures........................................................................................................10

1. Introduction

The Latin word for auction is “augère”, which means “to increase”(Simpson, 2000). This word carries out the purpose of the original auction very well, since an increase of the selling price was the goal of auctioning a commodity.(McAfee and McMillan, 1987)

There are over fourteen different types of auctions, but this paper will only discuss the traditional English auction. This is because the English auction, also known as the open ascending price auction, is de most commonly used type of auction. It usually starts with the auctioneer who will announce a starting bid. After that the bidders are allowed to call out their own bids. The next bid always has to be higher than the previous one. This process of bidding up continues until none of the bidders is willing to pay a higher price for...