Question

In: Economics

Your firm is planning to hold an auction to sell its oil field. What type of...

Your firm is planning to hold an auction to sell its oil field. What type of auction should you suggest to your boss? Why?

Solutions

Expert Solution

There are generally three types of auction and these are absolute auction or auction without any reserve, minimum bid auction or an auction where a minimum amount are fixed before start of auction and third is reserve auction an auction subject to confirmation. I think we should suggest minimum bid auction. Because here the oil field will be sold out and there will be considerably high price and here not all the people will be able to part of this auction. If we use absolute auction there is a chance of low because number of auctioneers will not be high. As a result possibility of low price is there under absolute auction. If we use minimum bid auction then there is no chance of loosing to seller. If a minimum sale price is fixed before the auction then to sell this that amount should be paid. Here if we use the minimum bid auction that will be more effective because of getting high price and less chance of loosing. Therefore there should suggest the minimum bid auction.


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