I have seen many makers do this and the knife typically sells for substantially higher than the makers normal asking price.
Then the seller was charging too low of a "normal" asking price
Right?
English Auctions allow the seller to extract
all consumer surplus
You see the pink shaded area?
That is what the seller wants to
extract from you
http://en.wikipedia.org/wiki/Economic_surplus
The English auction, as a rule for allocating a single object, has been studied extensively.
It is known to be an efficient (with respect to revenue or consumer surplus)
incentive mechanism under various assumptions. Thus, in the single unit case, the equilibrium
behavior in the English auction extracts the necessary preference information and
leads to "optimal" allocations (see, for example, Milgrom [9]). When all agents know their
valuations (i.e., in the private values case), truthfully revealing one's demand is a dominant
strategy. Moreover, the equilibrium, when all agents use their dominant strategies,
results in a Walrasian allocation and the revenue collected is the value of the object at the
smallest Walrasian price.
http://www.princeton.edu/~fgul/english.pdf
Classical microeconomic theory uses the notion of consumer surplus as the welfare measure that
quantifies benefits to a consumer from an exchange. Alfred Marshall (1936) defined consumer surplus as
the excess of the price which he (a consumer) would be willing to pay rather than go without the thing,
over that which he actually does pay
It is also traditional to visualize consumer surplus as the roughly
triangular area lying under a downward sloping demand curve and above the rectangle that represents
actual money expenditure. Yet, despite its established theoretical standing, empirical studies of consumer
surplus levels are not widely observed in the literature. Imagine a traditional retailer using the posted
price selling format asking a consumer checking out, By the way, how much were you really willing to
pay for this item?
http://www.rhsmith.umd.edu/faculty/wjank/consumerSurplusOnlineAuctions.pdf
There is nothing unethical about TRYING to figure out what is the MOST your customer is WILLING to pay for...........
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When I was at the Santa Barbara knife show I saw a knife that was up for bids
There was simply a sheet of paper where you put the price you are willing to play
MY 1st thought was========>
That is BRILLIANT!!
It allows the seller to extract all
consumer surplus
My 2nd thought====>
How could people collude (cheat)?
Collusion is always a problem in auctions
Usually has to do with "signalling" some how, some way, the price you bid
There was collusion for the "G3 spectrum auctions" in Europe, for example
The "players" signalled other players to the price they bid
Had to do with the NUMBERS
bid
The funny part is they picked some of the TOP ECONOMISTS in the field of game theory to design the "game" (Think of the guy from
A Beautiful Mind)
And they failed
My 3rd thought===>
How does it work at the END of the auction?
Are elbows with pencils being thrown to get in the last bid on the piece of paper?
So why don't ALL sellers use the English Style Auction you ask?
Costs
It costs a lot of time (and money) to run an auction for every item
That is why I think the sellers usually only do it on their highly demanded knives
(the ones you NORMALLY have to wait a year for=HIGH demand)
And some buyers want to buy something NOW
They don't want to have to WAIT 4 hours until the auction ends
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It turns out that the consumer actually saves money on EBAY auctions
We show that these benefits are significant, amounting
conservatively in the range of $7.05 billion for the year 2003 alone. The 2005 dataset that we collected for
the robustness analysis indicates that the surplus level has grown from a median of $4 per auction to
$4.83 and from a total estimate of $7.05 billion to $8.39 billion
What that means is a bidder who was
willing to pay 14 bucks for an item
On avg. only paid $9.17.....................
BTW...the EBAY
proxy bidding style of auction is a form of the Vickery Auction
http://en.wikipedia.org/wiki/Vickrey_auction
