In: Economics
Ans) At the higher sales price, seller received the greater producer surplus. So Galinsky’s observation that a larger number of bidders results in a higher sales price which means that a seller will want to take actions that rise the number of bidders for her good.The process of to do this is to set a lower opening price. When the opening price is low, the seller is authorizing more of the total surplus to be accessible to the winning bidder at the beginning of the auction. A potential buyer is more likely to bid if the opening price is low because he believes he can get a massive amount of share of the total surplus (that is, a large amount of consumer surplus) if he wins. If no one else bids, the bidder will indeed get that large amount of consumer surplus. But a low opening price also attracts other bidders, which, on average, increases the selling price and delivers more of the total surplus to the seller.