In which of the following situations do you think an auction would be more useful, and...

In which of the following situations do you think an auction would be more useful, and in which—fixed price?

Items

Seller knows nothing about buyers' WTP

Seller knows that the highest WTP is $100

Seller knows that buyer's WTP falls somewhere between $0 and $100, with exactly one buyer willing to pay above $90

Seller knows that buyers' WTP falls somewhere between $0 and $100, with at least three buyers willing to pay above $90

Buyers are time-constra-
ined

Solutions

Expert Solution

When seller knows nothing about buyer's willingness to pay WTP then its better to go for auction because seller has no idea about what price would lead to sale.

When seller knows that highest WTP is 100 then he should go for fixed price near or equal to $100 as he knows that item will be sold at $100.

When seller know that WTP is between 0 to $100 with only one buyer willing to pay above $90, then seller should go for fixed price because probability of rising price in auction is less.

When seller know that WTP is between 0 to $100 with three buyers are willing to pay above $90, then seller should go for auction because probability of rising price in auction is higher here.

When buyers are time-constraint then fixed price is better option as buyer do not have time to spend time in auction.

Rahul Sunny answered 1 year ago

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