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Online Auctions for Fund Raising by Non Profit Organizations Essay

Pages:8 (2322 words)

Sources:4

Subject:Business

Topic:Nonprofit Organization

Document Type:Essay

Document:#34213505


A Systematic Review of Online Auctions for Fund Raising by Non-Profit Organizations

Background

Its origin dating back to Babylon in 500 BC auctions account as one of the oldest forms of price determination mechanism in the markets. Auction is negotiation protocols that entail simultaneous bidding with the price determined bidders and products or services allocated based on competition amongst potential buyers (McAfee, 2017).

Classifications of Auctions

There are four major classifications of auctions formats in the market based on the information asymmetry and the flow of prices. The auction types include English Auction, Dutch Auctions, sealed-bid first-price auctions, and Vickrey auctions (Klemperer, 2004).

English and Dutch auctions are both open auctions implying that they are orally implemented but entail distinguishing value setting features. According to Klemperer (2004), an English Auction also known as the oral ascending auction or first-price auction entails an ascending sequential price strategy where the auctioneer sets a reserve bid price which is the lowest price that the auctioneer is willing to accept while potential buyers place ascending competitive bids with a higher bid outbidding the previous bid until the bidders reach the maximum bid price, they are willing to pay for an item. As the bidding prices increasing, bidders gradually quit the auction such that the highest bidder after multi rounds of price iterations. Given that the bidders get instant feedback on the other bidder's valuation of the item on sale, English auctions are associated with aggressive bidding (McAfee, 2017). The dominant strategy for a bidder is, therefore, bidding at a price slight lightly above the previous highest bid until the bidder reaches the private value price for the item. Generating its name from the Dutch Flower Auction, the Dutch auction entails an oral descending sequential price strategy. The auctioneer sets the highest price asking, while the potential buyers place descending price offers, with the price decreasing with subsequent bids till one of the bidders is willing to pay the quoted price. While it's implemented in an open platform, a Dutch auction does not reveal fundamental information to enable bidders to make more informed decisions. Time-saving is the distinguishing advantage of a Dutch (Klemperer, 2004).

Both the sealed-bid first-price auctions and Vickrey auctions entail submission and opening of bids privately but with distinguishing features of the difference in the valuation that the highest bidder pays (Klemperer, 2004). In a first-price sealed-bid auction, each bidder independently submits a single bid, without knowledge of other bids value. The item is sold to the bidder providing the highest price; therefore is also popularly known as the first bid auction. McAfee (2017) notes that the confidentiality nature and the documented nature of the sealed option ensure accountability. Hence it's popular among government entities and corporate organizations. The Vickrey auctions, also are known as second-price sealed-bid, involve the setting of bid prices without knowledge of the value of the other bidders. The highest bidder wins the bid, but the bid winner pays the price of the second-highest bid. According to Klemperer (2004), fundamentally, the bidder's optimal strategy is determined by the bidder's private value and the perceived valuations by other bidders, implying that the dominant strategy is bidding at the true valuation of the item. eBay, Google, and Bing are some of the popular types of Vickrey auctions McAfee (2017).

Surge Pricing and Congestion Pricing Mechanisms

Surge and congestion pricing are both a dynamic pricing model that employs a price discrimination mechanism to set optimum prices based on the forces of demand. Surge pricing entails a temporary increase in price above the regular price when the market is experiencing high demand. The rationale for surge pricing is the continued supply of a product or service when the market is experiencing unprecedented high demand. Lower willingness to pay the surge price results in a demand decline. This enables the scarce resources to be shared among customers willing to pay a premium for products when the market is experiencing a surge. On the other hand, a market surge implies higher compensation for the service or product provider, hence sustained product or service availability, reducing the extent of a supply shortage. Surge pricing is popular on-demand service platforms, particularly ride-hailing platforms such as Uber,…

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…improves the value for the non-profit organization charitable activities. Holding traditional charity auction, which is held in a hall, creates a platform for inspiration for the audience with the financial capability to contribute (Kingston, 2015).

Charity auctions are not devoid of constraints. Since charity auctions are associated with exclusivity and high market-value items, they place high pressure on an organization's procurement team to source items that meet high expectations. Charity auctions are associated with high logistical planning diminishing the economic viability of charity auctions. Silent charity auctions are time-consuming, risking generating value higher than the cost of implementing the auction. Moreover, the success of live charity auctions is highly dependent on the quality of the auction items and skills of the auctioneer, with auctioneers who trigger excitement and competition raising high value for items. Over time, auctions risk undermining the mission that the Non-Profit Organization is chartered to support. For example, auctions to support art would imply that the artwork retails at a higher price than the true market price, hence setting higher price precedence for the market, hence unsustainably retailing undermining the artwork market (Connelly & Winter, 2003).

Uncovering Value and Increasing Revenue through Auctions by the World Vision

Forbes Magazine enlists World Vision as #19 largest charity institution in the U.S. with a private donations valuation of $719 and with a fundraising efficiency pf 88 percent (Forbes Magazine, 2019). World Vision is 100 percent donor-dependent Christian relief and development umbrella organization. The Non-Profit-Organization supports humanitarian and advocacy activities by supporting communities, families, and children in fragile economic status in over 100 countries globally. The World Vision could leverage the opportunity of an online auction, particularly mobile auctions, to raise funds. Mobile auctions enable donors and guests to submit their bids via smartphones from the convenience of their seats. Mobile auctions open a charity auction to a wider audience, increase competition translating to revenue maximization by World Vision. Undertaking online auctions breaks the geographic barriers and would enable World Vision to extend its auctions to longer periods as opposed to a single night and venue auctions increasing the amount that the…


Sample Source(s) Used

References

Cachon, G. P., Daniels, K., & Lobel, R. (2015). The Role of Surge Pricing on a Service Platform with Self-Scheduling Capacity. https://ssrn.com/abstract=2698192

Connelly, A., & Winter, M. (2003). Going...Going...Gone!: Successful Auctions for Non-Profit Institutions (Second). Target Funding Group, Inc. All.

Fasli, M., Co, C., & Co, C. (2014). Designing and Implementing E-market Games. Designing and Implementing e-Market Games. January 2005.

Forbes Magazine. (2019). The 100 Largest U.S. Charities. Forbes Magazine. https://doi.org/10.1007/springerreference_75918

Hasker, K., & Sickles, R. (2010). eBay in the Economic Literature: Analysis of an Auction Marketplace. Review of Industrial Organization, 37(1), 3–42. https://doi.org/10.1007/s11151-010-9257-5

Kingston, K. (2015). A Higher Bid: How to Transform Special Event with Strategic Benefit Auctions. John Wiley & Sons, Inc., Hoboken, New Jersey.

Klemperer, P. (2004). Auctions: Theory and Practice. In Princeton University Press. https://doi.org/10.4337/9781839107429.00004

McAfee, P. (2017). The Ideal Auction - Numberphile. YouTube. https://www.youtube.com/watch?v=4kWuxfVbIaU

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