Comprehensive Report on Auction Types, Applications, and Sky PLC

This report provides a detailed analysis of various auction types, including English, Dutch, Sealed Bid, and Vickrey auctions, highlighting their similarities and differences. It examines the acquisition of Sky PLC through a sealed bid auction, justifying its suitability for the transaction. Furthermore, the report explores the application of auctions in finance, e-commerce, and e-games, using examples like the New York Stock Exchange, eBay, and US Treasury auctions, explaining the suitability of specific auction types for each context. It also discusses the advantages and disadvantages of using auctions as revenue generators for not-for-profit organizations and suggests ways companies can leverage auctions to uncover value and increase revenue through asset disposal, loss elimination, marketing cost reduction, product viability assessment, and brand strengthening. The report concludes with a list of references.

Running Head: AUCTION 1
Auction
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An auction is a sales process in which products are sold at a specific time and place
through competitive bidding either in an open or closed format (Numberphile, 2018). Auctions
may take different forms depending on the auctioneers and also the value and nature of the
product that is being sold (Börgers, Cox, Pesendorfer, & Petricek, 2013). The main common
types of auctions include; English, Dutch, Sealed bid, Vickrey, Yankee, and Reverse Auctions.
Each of these auctions has its own strengths weaknesses, although there are some similarities
which are common among many of them.
Question 1a: The English versus the Dutch Auctions
The major similarities between English and Dutch auctions include; in both, the
auctioneer sets the opening price. Secondly, the process involves competitive bidding. The major
differences include; in the English auction, the price starts from the lowest and the bidders
compete in ascending order, while in Dutch auctions prices starts from the highest and bidders
compete in descending order. Secondly, in English auctions, the product is sold to the highest
bidder who outshines the others in offering highest price, while in Dutch auctions the product is
sold to the bidder who claims it as the price keeps on descending or until a bidder presses a
button to stop the automatic clock. Thirdly, in English auctions, the reserve/ lowest price must be
met while in Dutch auctions there is no reserve price thus the product may fetch a very low value
depending on the bidders (Sollish & Semanik, 2018).

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Question 1b: The Sealed Bid Auction versus the Vickrey auction
According to Sollish & Semanik (2018), the major similarities between the sealed bid
auction and Vickrey auction include; they both use sealed bids. Secondly, in both the bids are
opened after all bidders have cast their bids. Thirdly, in both the product is sold to the highest
bidder. However, they are different in the sense that, in sealed bid auction the product is sold to
the highest bidder at the price that the bidder quoted while in Vickery auctions the product is
sold to the highest bidder at the price that was quoted by the second highest bidder. Thus, in
sealed bid auctions the winning bidder buy the product at the value that they attach to it while in
Vickery auction the winner buys the product at lesser price which is determined by the first
runners-up (Bikhchandani, De Vries, Schummer, & Vohra, 2011).
Question 2: Acquisition of Sky PLC
According to Takeover Panel (2018), Sky PLC was acquired through a sealed bid auction
in which the bidders were America’s largest media companies Comcast and Twenty-First
Century Fox. The bidding process involved three rounds of sealed bidding in which the first two
bids did not fetch a good value but in the last bid, Comcast defeated Fox by offering 17.28 Euros
per share of Sky PLC while Fox offered 15.67 Euros per share of Sky PLC. The total acquisition
value offered by Comcast was 39 billion dollars which was 3.6 billion dollars higher than what
Twenty-First Century Fox offered.
The type of auction used in the acquisition of Sky PLC was the best type due to the
following reasons; in a sealed bid auction, none of the bidders is aware of what the other bidder
has quoted until the bids are opened in which case, the bidders had an opportunity to attach their
true value to Sky PLC shares without being influenced by competitive opening bidding like in

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the case of English auctions. Secondly, sealed bid auction are fare enough to all bidders since the
product is sold to the highest bidder, thus in the case of Sky PLC, the bidder who quoted the
highest bid got the company. Thirdly, closed sealed bids unlike Dutch auctions enable a product
to acquire the highest value ever since the bidders compete on who will place the highest bid
while in Dutch auction the highest price is set then the bidders start competing in descending
order. Thus in the case of Sky PLC if Dutch auction was used maybe it would not have fetched
the value that it fetched. Fourthly, the auction involved three rounds, thus each bidder that is
Comcast and Fox was given a chance to compete to their level best unlike when it would have
involved only one round (Athey, Levin, & Seira, 2011).
Question 3a: Application of Auction in Finance, E-commerce and /or E-games
The field of finance is wide and incorporates even the buying and selling of securities.
Auction has been embraced in this area by organizations such as the New York Stock Exchange
market in which buyers and sellers trade securities through bidding (NYSE, 2018). Still, in the
field of finance, the US Treasury offers treasury bills and bonds for public purchase through
auction in which case the bidders submit their bids electronically (U.S Department of the
Treasury, 2018). In the area of e-commerce and e-games, UK based e-commerce site eBay offers
the best auction platform in which the sellers post their product and set their reserve prices. The
potential buyers engage in competitive bidding and the seller sells the product to the highest
bidder (eBay, 2018). The product that the seller offers for auction may be a tangible product or a
game.

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Question 3b: Type of Auction used and its Suitability to the Product
The New York stock exchange market uses the English auction in which the securities
sellers set the minimum price they can sell their securities at and the securities buyers declare the
maximum price they are willing to pay for the securities ((NYSE, 2018). This method is suitable
for securities since it enables them to fetch the highest value. eBay e-commerce site also uses the
English auction, the type of auction is suitable since once the sellers set their reserve price, the
product cannot be sold at any price lesser than that, therefore it guarantees the seller that the
product will generate profit once it is sold (eBay, 2018). The US Treasury has the competitive
bids and the non-competitive bids. The competitive bid uses the Dutch auction in which the
buyers determine the price they want to buy the bonds and bills and the return they expect from
them, then the bills and bonds are issued at the price of the lowest accepted price (U.S
Department of the Treasury, 2018). It is suitable for the product since it enables the buyers the
treasury to attract many buyers to buy the bills and bonds.
Question 4: Advantages and Disadvantages of Using Auctions as Revenue generators for not for
profit organizations
The main advantages include; if English auction and other ascending competitive bidding
auctions are used they will provide a better option in which the not-for-profit organizations can
sell their products at a high value than the normal market (Hernando-Veciana & Michelucci,
2011). Secondly, auctioning enables the organization to enjoy some tax benefits (Garrett, Ordin,
Roberts, & Serrato, 2017). Thirdly, many not-for-profit organizations do not have strong product
brands, therefore, their products cannot gain a competitive edge in the market, and thus an
auction is the best way in which such products can be sold. Fourthly, an auction attracts only

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interested people who want to bid for the products thus it serves as the best way for not-for-profit
organizations to target buyers of the products or assets that they are selling.
The disadvantages of using auctions by not-for-profit organizations include the
following; first, if Dutch auction is used, the product being offered for sale may fetch very little
value which will be a loss to the organization (Numberphile, 2018). Secondly, in an auction such
as the English auction, if the set reserved price is too high, it may discourage many potential
buyers from engaging in the contest thus the asset may eventually not get any buyer. Thirdly, the
value that a product will fetch in an auction is unpredictable therefore it is not a suitable revenue
model especially when formulating strategic plans to achieve organization’s objective
(Hammond, 2010).
Question 5: Ways in Which a Company can use Auctions to Better Uncover Value and Increase
Revenue
Disposing assets: the organization can gain more value by disposing its assets which are
not currently in use through English auction since the potential buyers will bid for it until it gains
the highest value that the buyers are willing to pay (Hernando-Veciana & Michelucci, 2011).
Eliminating losses: the organization can set the reserve price for its commodities slightly
above the break-even point so that any bid above the reserve price will be profitable to the
organization (Hammond, 2010).
Reducing marketing cost: rather than engaging in the ordinary over-the-counter selling
technique which involve a lot of cost in advertising and other competitive strategy the
organization can use auction which will require less marketing cost thus guaranteeing higher
returns.

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Assessing the viability of a new product: an auction will provide a better opportunity for
the organization to know how much value the customers attach to their new products. Such value
can be used in product pricing process (Numberphile, 2018).
Strengthening brand: once a product acquires a high value in a public auction, it gains a
reputation which an organization can maximize on to penetrate the market(Numberphile, 2018).

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References
Athey, S., Levin, J., & Seira, E. (2011). Comparing open and sealed bid auctions: Evidence from
timber auctions. The Quarterly Journal of Economics, 126(1), 207-257.
Bikhchandani, S., De Vries, S., Schummer, J., & Vohra, R. V. (2011). An ascending vickrey
auction for selling bases of a matroid. Operations research, 59(2), 400-413.
Börgers, T., Cox, I., Pesendorfer, M., & Petricek, V. (2013). Equilibrium bids in sponsored
search auctions: Theory and evidence. American Economic journal:
Microeconomics, 5(4), 163-87.
eBay. (2018). Selling through auctions. Retrieved from
https://www.ebay.com/help/selling/listings/selling-auctions?id=4110
Garrett, D., Ordin, A., Roberts, J. W., & Serrato, J. C. S. (2017). Tax advantages and imperfect
competition in auctions for municipal bonds (No. w23473). National Bureau of
Economic Research.
Hammond, R. G. (2010). Comparing revenue from auctions and posted prices. International
Journal of Industrial Organization, 28(1), 1-9.
Hernando-Veciana, A., & Michelucci, F. (2011). Second best efficiency and the English
auction. Games and Economic Behavior, 73(2), 496-506.
Numberphile. (2018). The Ideal Auction - Numberphile. Retrieved from
https://www.youtube.com/watch?v=4kWuxfVbIaU
NYSE. (2018). The New York Stock Exchange | NYSE. Retrieved from https://www.nyse.com/

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Sollish, F., & Semanik, J. (2018). Retrieved from
https://onlinelibrary.wiley.com/doi/pdf/10.1002/9781119205098.app4
Takeover Panel. (2018).The Takeover Panel. Retrieved from
http://www.thetakeoverpanel.org.uk/
U.S Department of the Treasury. (2018). Treasury Auctions | U.S. Department of the Treasury.
Retrieved from https://home.treasury.gov/services/treasury-auctions