A Bid to Modernize Auctions
When people think of auctions, they often imagine overcrowded rooms of people raising paddles, furiously bidding for rare antiques. While these Hollywood-esque auctions do exist in the real world, they are far from the norm; indeed, auctions are actually a very useful sales format, commonly used a surprising number of cases– for example, the sale of natural resources by various world governments. However, auctions are not without their limitations; while traditional systems of auction have been very successful in the past, there has been a push recently to update auction methods to conform to the modern era.
For years, countries like the United States and India have been employing a sealed-bid second-price auction system for the sale of various resources, like coal mines and gas fields, to private contractors. These auctions are often considered to be a very fair format for the buying and selling of various commodities; as we have seen in class, these auctions provide a high sale price for the seller, while also giving fair prices to each buyer. In addition to this, these auctions encourage bidders to bid their true value. However, recent events have made pitfalls of this sales system evident. Just a few years ago, for example, a auction held by the Indian government was sullied by collusion between two major bidders, who coordinated bids to ensure that they would win, with a low second highest bid. While other bidders were not necessarily affected by the collusion of these two bidders, it allowed them to buy a resource at a price much lower than its valuation– a rare occurrence in most auction formats! Other problems that have emerged in current auction systems include the “Winner’s Curse” phenomenon, decreased valuation of commodities and more.
In light of the issues that have come about in recent years, some governments have been considering different systems of sale. While some simple solutions proposed changing auction formats, other solutions propose more dramatic refactors of the auction systems in place; India has proposed further integration of the web in the auction system, in order to help prevent collusion, and ensure that auctions can be carried out in a swift and clear manner. Whatever the solution, it is clear that auctions will continue to be a dominant transactional system for years to come.