Summary 701c. Suppose buyer 1 offers to buy the bowl from buyer 2 and they
negotiate a sale price of $600. Again, calculate the total of the player
payoffs and provide a brief assessment. In his role as a middle man,
does buyer 2 deserve the profit he makes?- Identical items are sold at English auction by one of two methods. One is
to auction single items, one at a time. The other is to hold an initial
English auction in which the high bidder has the right to buy the lot or a
portion of it (at the price he or she bids per unit). If the bidder
purchases only some of the items, the remainder are immediately re-
auctioned under the same ground rules.
a. Suppose seven identical items are auctioned one by one. What
complication does this present for bidders? Which items, the
first or the last, would you expect to sell for the lowest prices
on average?
b. Suppose the winning bidder can buy all or some of the seven items
and any leftovers are re-auctioned. In what sense does this procedure
resemble a Dutch auction? How might this affect buyers’ bidding
strategies? - A half-dozen firms are competing to secure a highway contract from a
local government via sealed bid. When bids are opened, the winning
firm’s bid is 40 percent below the next-lowest bid.
a. How might you explain such a low bid? Given such a bid, what risks
does the winning bidder face? Explain.
b. Is such a low bid unambiguously “good” for the local government?
What potential risk does the government face? (In terms of the
auctioning party’s risk, how does a procurement differ from an
auction sale?) How might the government protect itself from this risk? - Reliant Press produces business forms for large customers: major banks,
insurance companies, and the government. More than half of its sales
are by competitive bid. Its largest facility receives an average of 10 bid
requests per week and responds to 90 percent of them. The firm typically
is one of three or four bidders on any job. In making its bids, Reliant has
applied highly variable markups above cost (anywhere from 30 to 90
percent). As part of a review of its bid performance, the firm’s chief of
sales recently ordered the collection of bid data for the past four
months; these data are shown in Table A. Table B shows the information
the firm collected on the lowestcompeting bid for each auction during
this period.
a. Based on the information in Table A, what is the firm’s optimal
markup?
b. Answer part (a) using the information in Table B. Do the tables
support similar policy actions? Which table embodies better
information?
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