Economics-Outline

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Economics

 Surge and congestion pricing are mechanisms to manage the demand for services

or resources. Surge pricing is mainly used in the sharing economy, such as ride-

sharing apps like Uber. Surge pricing entails increasing prices during peak

demand to balance supply and demand (Cachon et al.,2017). For example, during

the rush hour period, the pride of an Uber ride is likely to increase to encourage

more drivers to offer their services and discourage excessive demand.

 The elements of surge pricing entail a dynamic process whereby the pricing

depends on the adjusting prices in real-time and based on supply and demand.

Incentives are also a significant component in surge pricing, whereby the higher

prices encourage more service providers to participate and more consumers to

wait for demand to subside (McAfee, 2009).

 Congestion pricing, on the other hand, is a strategy applied in urban transportation

systems. Congestion pricing reduces traffic congestion by charging vehicles a fee

for entering specific high-traffic areas during peak hours (McAfee, 2009). An

example is the London Congestion Charge, whereby vehicles entering certain

parts of central London during specific times are charged a fee to discourage

unnecessary traffic and promote public transportation.

 For congestion pricing, using fixed prices is the main element, which entails

charging a fixed fee for access to certain areas during specific periods. The goal

of congestion pricing is also to reduce traffic congestion and ensure the use of

alternative modes of transportation (Zheng et al., 2023). Differently, congestion

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pricing contributes to long-term impact, has a lasting effect on traffic patterns, and

encourages sustainable transportation choices.

 The English auction begins with a low initial bid which gradually increases as the

participants place higher bids. In the English auction, the auctioneer keeps calling

out higher prices until no one is willing to bid any further; later, the highest bidder

wins the item (Paseda, 2021). The English auction tends to uncover the actual

value of an item as the participants actively compete and bid higher to outdo each

other, revealing their willingness to pay.

 On the other hand, the Dutch auction begins with a high asking price that

eventually decreases until the bidder is willing to accept the price and secure the

item. The auction format is vital for determining a participant's lowest price

(Zhang et al., 2021).

 In the sealed bid first price auction, the participants submit their bids in sealed

envelopes. In this case, the highest bidder wins the item and pays the amount they

bid. The sealed bid first price auction aims to uncover participants' true valuations

for the item, as each bidder is motivated to bid their maximum willingness to pay

to secure the item (Alvarez et al., 2020).

 The Vickery auction, on the other hand, is a case where participants submit bids

secretly. The highest bidder wins the item, but instead, they pay the amount bid

by the second highest bidder. The Vickery auction encourages the participants to

bid accurate valuations as they will not be penalized by bidding more than their

willingness to pay (Josheski et al., 2021). The winner pays less than their bid,

which can lead to efficient outcomes. For example, when bidder one of a watch
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bids $800, bidder two bids $1200, and bidder three bids $1000, the second bidder

can pay for the watch but pay what the third one had committed.

 One example of auctions provided in the federal government auction is the

Federal Communications Commission. This auction allocates and manages

wireless spectrum licenses for communication services such as mobile phones and

TV sets. The multiple-round auction is usually used in the federal

communications commission auctions. It allows the participants to bid on

multiple licenses simultaneously in multiple rounds, adjusting their bids based on

the evolving market prices.

 For the profit business auction, eBay is an example of a for-profit business that

uses online auctions. eBay uses the English Auction format whereby an item is

listed for sale, and the potential buyers place bids (Warren, 2021). In this case, the

prices start low, and the participants bid higher until the auction's time limit is

reached. This format encourages competitive bidding since the participants aim to

outbid each other to acquire the item.

 The auction to sell the Wells Fargo consumer-facing banking division involved

interested buyers submitting competitive bids to acquire the division. The value of

the division was determined through the bidding process, which can provide

insights into the market's perception of its worth. Bidders would base their offers

on factors such as the division's financial performance, customer base, assets, and

overall strategic fit with their operations. The

 Conversely, if the bids are lower, it will suggest concerns about the division's

financial health or strategic fit. The final bid amount could serve as a critical data
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point for Wells Fargo and other stakeholders to evaluate the division's value and

make informed decisions about its sale.

 For the auction to sell the Wells Fargo consumer-facing banking division, a sealed

bid auction with the Vickery auction format might be recommended (Warren,

2021). In this type of auction, the potential buyers submit confidential bids

without knowing the offered amount. In this case, the highest bidder wins the

division but instead pays the price submitted by the second bidder.

 The sealed bid auction will also play a significant role in the case of Wells Fargo

Auctioning. This second price format reduces the risk of a winner's curse whereby

the highest bidder overpays due to overestimating the division's value (Paseda,

2021). This type of auction creates an environment of fairness and transparency

since the bidders cannot manipulate their bids based on other offers.

 In conclusion, the intricate world of auctioning showcases diverse strategies and

mechanisms, each tailored to specific contexts and objectives. The exploration of

surge and congestion pricing highlights the dynamic nature of value

determination, while English and Dutch auctions underscore the balance between

competition and transparency. Sealed-bid and Vickrey's auctions offer insights

into strategic decision-making and information asymmetry. By delving into these

multifaceted approaches, it becomes evident that auctions are not merely

transactions but intricate ecosystems where psychology, strategy, and economics

intersect, shaping the landscape of trade and exchange.

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References

Alvarez, R., & Nojoumian, M. (2020). Comprehensive survey on privacy-preserving protocols

for sealed-bid auctions. Computers & Security, 88, 101502.

Cachon, G. P., Daniels, K. M., & Lobel, R. (2017). The role of surge pricing on a service

platform with self-scheduling capacity. Manufacturing & Service Operations

Management, 19(3), 368-384.

McAfee, R. P. (2009). Competitive solutions: the strategist's toolkit. Princeton University Press.

PASEDA, O. (2021). A SURVEY OF AUCTION THEORY AND AUCTION

FORMATS. UNILAG Journal of Business, 7(1), 131–147.

Warren. (2021, September 13). Letter from Senator Warren. U.S. Senator Elizabeth Warren of

Massachusetts.

Zhang, G., Li, X., An, J., Zhang, Z., Man, W., & Zhang, Q. (2021, March). Summary of research

on satellite mission planning based on multi-agent-system. In Journal of Physics:

Conference Series (Vol. 1802, No. 2, p. 022032). IOP Publishing. Zhang, G., Li, X., An,

J., Zhang, Z., Man, W., & Zhang, Q. (2021, March). Summary of research on satellite

mission planning based on multi-agent-system. In Journal of Physics: Conference

Series (Vol. 1802, No. 2, p. 022032). IOP Publishing.

Zheng, Y., Meredith-Karam, P., Stewart, A., Kong, H., & Zhao, J. (2023). Impacts of congestion

pricing on ride-hailing ridership: Evidence from Chicago. Transportation Research Part

A: Policy and Practice, p. 170, 103639.