Bidding for a Campus in NYC
Sealed bid auctions are a frequent means in the modern business world to have numerous competitors place bids for a project without the others knowing the exact value of each other’s bids. Sealed bid auctions can be beneficial to competitors because they are not compelled to raise their bids above their true value, since in a first price auction, if the competitors bid their value and won, then they would receive no payoff from winning the auction. Additionally, the seller that is receiving the bids benefits from the sealed bid system because they receive the value of the highest bid.
An example where this type of bidding system is currently being used is in the bidding for a new technology campus in New York City. Numerous universities such as Stanford and Cornell are placing closed bids in order to win approval from the city to build a satellite campus in New York City. The main discussion from the article is that the major universities are committing more and more resources to this project since they all want to establish a technological center in the emerging market of New York. Since the role of technology is expected to grow in New York to the point where it may eventually surpass that of Silicon Valley, the possible value of investing in a technology campus now may have great rewards in the future.
The process of bidding for a campus relates to a network of buyers and sellers because in this bidding process, every buyer has a valuation upon what the seller, the city, is offering. Since there are multiple buyers and only one seller, the current situation represents a constricted set among all the buyers. As the city increases its price, which in this case is its value for the bid, the valuations for each buyer will gradually decrease until there is only one buyer that has a valuation that is greater than 0. In a sealed bid, first price auction, this will be the winner of the auction and they will pay their bid price and have a total valuation of their value minus the price of the seller.