The use of auctions in price discovery.
Explanation of Solution
Auction refers to a process where the buyers are parties that are able to declare prices for a good, and the buyer that quotes the highest price or has the highest willingness to purchase the product attains it.
Auctions especially exist for those goods which are rare in nature or have relatively very few buyers willing to purchase it. For example, historical artifacts, rare stones or second-hand goods. The similarity in such goods is that the prices for such goods are not affirmatively established as they are not widely available or have a large number of buyers.
In such situations, the process of auctioning allows buyers to come up with the price by revealing their willingness. Thus, this process allows for the phenomenon of “price-discovery” to occur.
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Chapter 17 Solutions
Microeconomics (2nd Edition) (Pearson Series in Economics)
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