Quote:
Originally Posted by oldjudge
Do auctions really establish a "market"? Take an example--on a scarce card buyer A is willing to pay up to $10,000 for it. The next best buyer, buyer B, is only willing to pay $6,000 for it. If it goes to auction it will sell for one increment over $6000, say $6250. If sold privately it will sell for $10,000. Now, what's the "market" for the card? I think this illustrates the problem with auctioning off scarce items--the fact that the price is set by the second most aggressive bidder, not the most aggressive bidder.
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To my way of thinking the market is actually one bid higher than the 2nd place bidder is willing to bid. Look at it this way. In your scenario why is the market $10,000? The guy who bought it for that can't sell it for that because the next guy in the market is only willing to go $6,000. A competitive situation sets the market much more accurately than a one on one sale. Again, all just my opinion, and pretty self-serving at that, but it is a decent argument I think.