Pennsylvania Liquor Control Board Invites Bids in License Auction
http://www.prnewswire.com/news-releases/plcb-now-accepting-sealed-bids-for-first-auction-of-expired-restaurant-licenses-300326997.html
Last month, the Pennsylvania Liquor Control Board (PLCB) invited prospective bidders to place bids on 40 expired restaurant licenses spanning 21 counties. While there is significant demand expected for these licenses, the PLCB is using this auction as a trial run, so that the organization can effectively evaluate the market’s reaction to sale. The initial auction will implement a sealed bid process – this was done so that “the auction can be completed fairly and quickly through an established bidding process, as well as to maximize auction revenue.” Prospective bidders will have until October 27th to submit bids; winners will be announced the following week.
In class, we learned about various types of auctions and why auctions are carried out. Sellers generally hold auctions when they do not have a good idea of buyers’ true values for a particular item and when buyers do not know each other’s values. In sealed-bid auctions, each buyer only knows his or her own true value but cannot hear other values being called out. That is, ascending-bid auctions involve “real-time interaction between the buyers and seller” whereas sealed-bid auctions take “place purely through sealed bids that the seller opens and evaluates.” Because this is a first-price auction, bidders will have a tendency to “shade” their bids slightly below their true values – if they were to bid at true value (and to win), they would receive a payoff of 0. If they were to lose, they would also receive a payoff of 0. So in the case of the PLCB auction, we should expect prospective bidders to keep this in mind as they will try to maximize their payoff given their certainty of winning. If this were a second-price auction, however, we would expect bidders to bid at their true values, as that would be the dominant strategy in that scenario.