Auctions in finance, e-commerce and e-gamma

Use of auction in finance, e-commerce and e-games 5 a) Need for an auction in the product/service 5 b) Type of auction used in the product/service and why these type of auction is appropriate for the product/service 5 4. Ways in which the company can use auctions to better uncover value and increase revenue 7 Case study 2: Case Analysis of Risk, Uncertainty and Managing Incentives 8 Evaluation of the recent actions dealing with risk and uncertainty: 8 Advice for improving

Running head: AUCTIONS AND RISK MANAGEMENT
AUCTIONS AND RISK MANAGEMENT
Name of the Student
Name of the University
Author’s Note:

1AUCTIONS AND RISK MANAGEMENT
Table of Contents
Case study 1: Auctions....................................................................................................................3
1. Compare and contrast..............................................................................................................3
a) English and Dutch auctions.................................................................................................3
b) Sealed-bid and Vickrey auction..........................................................................................3
2. Case study of Concierge Auctions Limited.............................................................................4
3. Use of auction in finance, e-commerce and e-games..............................................................5
a) Need for an auction in the product/service....................................................................5
b) Type of auction used in the product/service and why these type of auction is
appropriate for the product/service..........................................................................................5
4. Advantages and disadvantages of auctions as revenue generators for not-for-profit
organizations................................................................................................................................6
Advantages..............................................................................................................................6
Disadvantages..........................................................................................................................6
5. Ways in which the company can use auctions to better uncover value and increase revenue
.....................................................................................................................................................7
Case study 2: Case Analysis of Risk, Uncertainty and Managing Incentives.................................8
Evaluation of the recent actions dealing with risk and uncertainty:................................................8
Advice for improving risk management:.........................................................................................9
Adverse selection problem of British Airways:.............................................................................10

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Recommendation to British Airways on minimising the negative impact of risk on transactions:
.......................................................................................................................................................11
Strengthening its portals:...........................................................................................................11
Partnering with the airline companies:......................................................................................11
Moral hazard problem of data security risk and suggested best practices in the industry to deal
with it.............................................................................................................................................11
Identification of principle-agent problem and tools BA uses to align incentives and improve
profitability:...................................................................................................................................12
Examination of organisational structure of BA and suggestion of ways to improve overall
profitability:...................................................................................................................................13
Conclusion:....................................................................................................................................13
References......................................................................................................................................16
Bibliography..................................................................................................................................17

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Case study 1: Auctions
1. Compare and contrast
a) English and Dutch auctions
An English Auction is a type of auction where auctioneer introduce opening bid which
are suggested and starting price of selling item. After that, the auctioneer takes the higher bids
that are increasingly with the interest of buyers in the selling item. Here, the auction gets end
when there is no willingness of participant to bid more or when the determined price is reached
where the highest bidder make payment of the price (McGee & Levin, 2019). A Dutch Auction
is a traditional type of an auction for the purpose of buying and selling items. Here, auctioneer at
the time of selling start with asking for high price and end up with lowering the amount when the
participants welcome the price (Mridha & Bhattacharyya, 2017). The auction gets end up where
the buyers are ready to pay the price which are announced by the auctioneer. The major
difference between the two auctions is quantity.
b) Sealed-bid and Vickrey auction
First-Price Sealed Bid Auction- There is another name of First-price Sealed Bid Auction
which is Blind Auction. This auction is much more different from other types of auction. There
are many valuable and broad range of items from properties that are included in first-price sealed
bid auctions which are costly for both individuals and businesses. There is an existence of only
one chance to bid in this type of auction for the bidder (Graddy & Ashenfelter, 2019). The bid
amount of the item is written by the bidder and given to the auctioneer, which gets end up with
the amount of the highest bidder.

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Second-Price Sealed Bid or Vickrey Auction- The another name of Vickrey Auction is
called Second-Price Sealed Bid Auction where bid is submitted irrespective of having knowledge
of the bids of other people (Goeree & Lien, 2016). This auction is similar to the sealed first-price
auction, but the main difference is that the bidder who wins pays the amount of second highest
bid not the amount of their own bid.
2. Case study of Concierge Auctions Limited
There are some weakness of the English auction that it is made by the notion of buyers on
the amount of good. By the cause of revealing price of bidders, by English auctions which makes
highest bidder to raise the amount along with the original amount of the good. The case study of
Concierge Auctions limited, presents that the buyer of the item may be affected by the price of
others buyers and the amount of bidding is increased by them which is not followed by the
original amount of the auctioned possession. As the winning bidder owns highest amount, the
bidders lead to imitate small amount not getting its full adequate estimation, making it
problematic for the seller to make large amount.
There are many auctions types that can be used to uncover the real value of unique real
properties but in this case the best one is to use Vickrey auction where bid is submitted
irrespective of having knowledge of the bids of other people. The bidder is not aware of the fact
what other buyers of the item are paying for the same. This auction method will help to provide
assurance to the bidders that they are not getting influenced by the amount of other bidder due to
the non-availability of information. This will advance the satisfaction of the bidder and lead to
less lawsuits.

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3. Use of auction in finance, e-commerce and e-games
Auction is an economic procedure which are used all around the world which aims at
transferring possession of an asset and at the same time discover a price for the transaction.
Basically, auctions are used to buy and sell goods and services right small to big scenario. In the
world of finance, auctions are required in buying and selling of whole firms along with the
shares and collateral issued by different companies or governments (Dukan et al. 2019). In the
field of e-commerce also, auctions plays crucial role as it helps in increasing revenue,
elimination of middlemen, improves supply chain, encourages efficiency, and reduction in cost
of transaction. Auction is involved in e-Game platform which was developed to give full support
to the design, application and execution of market duplication.
a) Need for an auction in the product/service
Auction is done at a public area where a large group of people gather and items are sold to all
members. There are many goods of different kinds for sale and are offered to the public at a
reserved amount which can be high. Auction helps to convert possessions, stocks and property
into cash rapidly, at the same time it assures seller to receive a good value of money in market.
b) Type of auction used in the product/service and why these type of auction is
appropriate for the product/service
There are different types of auction used in goods and services such as:
 Absolute auction- An absolute auction is most common type of auction where the item or
possession is undertaken to be sold because no existence of minimum price is there that
the seller wants to beat creating a huge interest and competition among bidders.

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 Minimum bid auction- Here, the bidding starts at a minimum price that the seller is
willing to accept. Such price is already published in prospects and advertisements, and is
announced at the auction.
 Reserve auction - In this type of auction, the seller of the item make up an absolute price
already but it is not revealed to the bidders. Hence, if there is any circumstance arise that
reserve price is not met, the seller gets chance to reject the amount of highest bid.
4. Advantages and disadvantages of auctions as revenue generators for not-for-profit
organizations
Advantages
Auctions can help the buyers to gain knowledge about the real amount of product/services
and make opportunities to take over the business. In addition, they are great way to visualize the
success of an organization. It act as a strong platform for sharing the growth of an organization.
They provide major ideas, antic objectives, and effective solutions that organization wish to
attain. One another pros of auction is that they act as a source of inspiration. Auctions help by
inspiring others who develop same capacity to help like other donors show their willingness to
invest in their fund. Auctions for non-profit organizations provides great way to build
relationship with the existing donors. Interacting personally with the donor of an organization are
valuable at a large extent. It gives great opportunity to develop relation with the donor of
different organizations but not only with the existing one. Midsized donors must be also included
in it. Auction events are the great source of opportunity to make connection with them face to
face and verbally.

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Disadvantages
Auctions are not prefer to be right method of raising funds for some of the non-profits
organization. The reason behind this is that they are proved to be time consuming and expensive
process. The time involved in actions for not-for-profit organizations is too much. Most of the
event of raising fund takes excessive amount of time to make proper plan and execute them. The
auction events involves much time, effort and money which is not prefer to be a worthy one. The
event manager would require to make impressive and memorable to the people that may have
invested in it. Hence, it is advisable to think before arranging one. Competition is there in
Auctions as they are becoming trendy in an excessive way. All non-profit organizations such as
churches, schools, hospitals and many others of all sizes aims to arrange charity auctions. As
there has been increase in their popularity, they’ve been a part of trend resulting in extreme
competition.
5. Ways in which the company can use auctions to better uncover value and increase
revenue
There is an important role of auctions in uncovering the value of company and increasing
its revenue. There are few strategies related to it such as selecting a particular method of bidding
which can be used by the current company. It does not matter whether the auction is English or
Dutch, the approach must be towards increasing revenue. It is prefer to use English auction as it
allows buyers of item to make participation in auction amongst each other. This method is
useful in affecting the interpretation of buyers because they bid against each other. The
auctioneer declares the price and buyers make their bids until there is no existence of participants
offering higher bid. This auction gets end when there is no willingness of participant to bid more
or when the determined price is reached where the highest bidder make payment of the price.

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Moreover, the company should also ascertain the best way of carrying out the procedure. The
reason is that in today’s world, digital technology has invented new ways of interacting and
operating business and bidding through online platform can result to be a good source of selling
the goods and services of the company (PM, 2017). There will be no problem of dealing with
bids that used to happen in traditional methods. Auctions conducted through online platform
provides the company large access to huge globe and benefits regarding selling /buying from
other business who make interactions during the process of bidding.
Case study 2: Case Analysis of Risk, Uncertainty and Managing Incentives
Risk management has emerged as one of the main operations of the business
organisations to ensure they thrive in the fiercely competitive market. Florio and Leoni (2017)
mention business organisations face risks owing to ‘negative surprises’ or uncertain changes in
the business environment which results in increase of their indirect and direct costs, thus
reducing their profit margins. That is why business organisations consider risk management as a
part of their core business strategies to ensure that they are able to mitigate or at least reduce the
impacts of risks on their revenue generation and business growth. Waseem-Ul-Hameed, Ali and
Arif (2017) point out that risks are interrelated. The business organisations as a result adopt the
approach of enterprise risk management in order to counteract the impacts of the risks to the
feasible extent. One of the most severe risks which business organisations face is data theft risk.
Even the technologically advanced multinational companies are not immune to the risk and often
have to face immense loss of revenue owing failure to control data theft risks. The aim of the
assignment would be exploring a case of data theft risks faced by one such global company. The
company which would form the basis of the research would be British Airways
(Britishairways.com, 2020). The report would be based on the incident of data theft which led to

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theft of over 500000 customer data and cost British Airways a fine of ₤ 183 million (BBC.com,
2019).
Evaluation of the recent actions dealing with risk and uncertainty:
The management of British Airways took several steps to deal with the incident of data
theft risks. First of all, global airline company strengthened its data security systems to ensure
that the data bases of the company are protected against the online hackings to the feasible extent
(Sweney, 2019). The second step which the company took to deal with the hacking incident was
to appeal before the Information Commissioner’s Office or ICO to review the hefty penal charge
imposed on it by the body (BBC.com. 2019). The third step which British Airways took to
diversify the financial loss of ₤ 183 million was to increase its number of flights along crtain
selected routes. For example, the company announced more number of flights between
Bangalore and London (Mishra, 2020). A review of these measures brought certain salient aspect
of the readiness of British Airways to manage potent risks like data theft risks. First, the
company has undoubtedly taken some strong steps like strengthening its IT policies to mitigate
future data theft risks. However, company did not involve the key stakeholder groups like the
customers in the process. For example, the company could have educated the customers on using
its portals. This would have ensured that the customers use the portals of the company while
booking flights more cautiously which would have minimised chances of data theft risk in the
future to a greater extent.
Advice for improving risk management:
The management of British Airways could be advised that it should involve the
stakeholders like the customers to improve its data theft risk management strategies in the future.
For example, the company could have trained the customers, third party companies like tourism

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companies to use its portals more cautiously. One can also advice that the management of British
Airways should establish a vigilance system which would detect in discrepancy in its portals like
banks declining payments of certain customers even after filling up debit/credit details and take
prompt action to prevent the issue(s) detected from escalating further.
Adverse selection problem of British Airways:
The adverse selection problem which comes to the light upon analysis of the incident of
data theft suffered by British Airways is that the customers whose financial details were stolen,
did not have any knowledge about the theft. The situation of adverse selection refers to the
situation in which there exists a communication gap between the companies and the customers.
Customers expect the companies to communicate the strategies like new product development on
timely basis (Hillman & Neustaedter, 2017). In other words, adverse selection results in lack of
communication and consequent lack of trust between the companies concerned and the
customers. The outcome of this trust can ultimately lead to companies losing their customers to
their competitors (Cui & Wu, 2016). One could recommend in the light of this analysis that
British Airways should take strong steps to mitigate or at least minimise the scope of adverse
selection it has caused by suppressing the information about the data theft. For example, the
British flagship airline company should inform the customers immediately after a data hacking
incident takes place in the future. The customers in this case would be able to stop the payments
or cancel their respective tickets. This cancelling of bookings and stopping of payments would
prevent the hackers to a great extent from stealing money from the bank account of the
customers concerned. Thus strategy of informing customers about data theft by British Airways
would consequently minimise the losses the customers would suffer owing to data theft. This

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would enable the company retain customer trusts and prevent the latter from switching over to its
competitors like Qantas (Graef, 2017).
Recommendation to British Airways on minimising the negative impact of risk on
transactions:
The following are the recommendations which could be placed before the management of
British Airways to ensure that the impacts of risks on its transactions are minimised to the
possible extent:
Strengthening its portals:
British Airways should strengthen its portal in terms of data security. For example, the
customers, third party tourism firms and investors would mandatorily provide their log in id,
password and an identity proof like passport number in order to access the portal of the
company. These log in details would enable the company from authenticating the identity of the
users, thus minimising scope of data theft.
Partnering with the airline companies:
British Airlines should partner with other airline companies like American Airlines to
conduct innovations on data security. This would enable development of advanced data security
techniques which would lead to reduction of data security thefts and consequent stealing of
financial information.
Moral hazard problem of data security risk and suggested best practices in the industry to
deal with it
British Airways is dealing with moral hazards or anxiety of customers who have suffered
owing to the data theft reported by strengthening its portal. This strengthening of the portal

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would ensure to a great extent that these customers do not suffer from data thefts and consequent
moral agony in the future.
The suggested best practices in the industry which could be suggested in order to ensure
that the firms operating in the airline industry do not suffer data theft risks would be
strengthening their portal gateways and changing the passwords to access these portals on
regular basis. They should also inform customers to stop their payments upon identifying data
breaches. They should also provide compensation to customers which lose money owing to
online hacking. These best industry measures to a large extent to minimise the moral hazards or
anxiety faced by customers owing to hacking.
Identification of principle-agent problem and tools BA uses to align incentives and improve
profitability:
The principle-agent problem which would be identified would be loss of trust between
British Airways and the customers in which the latter is the principle and the former is the agent.
This is because, the company is supposed to facilitate the airline the trips of the customers. Thus,
one can point out that in the events of data thefts, the customers would lose faith in the company
and may switch over to other airline companies like American Airlines. This is a problem for BA
as it would lead to the company lose its revenue generation from these customers which would
weaken it financially.
An evaluation of the tools BA uses to align profit incentives and improve its revenue
generation shows that the same are not efficient. This is because, the airline company did not
take prompt action even after the data theft was detected. The company could find ‘no evidence
of fraud/fraudulent activity on accounts linked to the theft’ even after the ICO reported the same.

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It only apologised to the customers ‘for any inconvenience this event caused’ (Sweney, 2019).
This shows that the company’s risk management implementations are not aligned to its profit
incentives and generation of revenue. In fact, the risk management implementation of the
company is slack to the extent of merely apologising to customers in events of online theft of
money instead of taking concrete steps to deal with the situation.
Examination of organisational structure of BA and suggestion of ways to improve overall
profitability:
An examination of the organisation structure of British Airways reveals that the company
has a flat organisation structure. This means that entire operations of the company is divided into
few levels. The different departments operate under the leadership of departmental heads who in
turn report the apex management. This ensures that the business related information flow fast
owing to the reduction in numbers of levels or hierarchy. This also ensures that the strategies
pertaining to the business operations are made fast and are communication down the
organisational hierarchy for implement.
It can be suggested in the light of the above discussion that the management of BA
should bring about certain changes in the organisation to enable more efficient risk management
and greater profitability. The first suggested strategy would be that every departmental should
have a dedicated risk management officer. For example, the finance department would have a
risk management officer who would oversee financial risks. The second suggested strategy
would be that there should be a risk management director at the apex level as well.

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Conclusion:
Thus, it has been concluded from the above discussion that there are many types of
auctions with different benefits. Secondly, Concierge Auctions limited have been embroiled in
different lawsuits where weakness of English auctions are discussed. In addition, there is another
type of auction such as Vickrey auction that may uncover the value of real estate properties in a
better way. There are some pros and cons of auctions for non-profit organizations impacting its
performance. Lastly, ways are suggested for the current company to use auctions for increasing
revenue and better uncovering value. One can conclude from the discussion that risk
management should be considered as part of the core business strategy by business organisations.
One can also point that the conduct of British Airways in the event of the data theft was not
appropriate considering its market position. The company did not take any substantial step to
compensate the affected customers and in fact only apologised to them. This attitude of the
company would ultimate lead to loss of trust of the customers on its commitment to provide
superior services to customers. This would lead to customers shifting to other companies. BA
should take prompt steps to ensure value creation of customers like compensating them in events
of losses suffered owing to data thefts on its portal in order to retain them.

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48905907
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