INSTRUCTOR DISCUSSION NOTES:
DutchFlowerAuctions.Com Not Far Away

1. What is the difference between a Dutch auction and an English auction? Under which would you expect to pay more for a given item?

In a Dutch auction, price falls until someone is willing to pay that amount. In an English auction, the price rises until only one bidder is left. In an English auction, you will pay less (all else constant), because you only need to outbid your closest rival, not necessarily bid the most you are willing to pay. In a Dutch auction, you tend to pay as much as you are willing.

2. What are the benefits and costs of letting the two largest domestic firms merge to form one large firm?

Answers may vary. Students should distinguish between the impact on the domestic market, and international market for the same item.

3. Draw a graph of supply and demand in the market for international roses (for example), as technology upgrades continue to reduce transport costs. What is the impact on the world price of roses?

World price should fall; the world supply curve is increasing as net transport costs fall.

Multiple Choice/True False Questions

1. What should happen to the price of flowers if auctions become more technologically advanced?
  1. Price should rise.
  2. Price should fall.
  3. Price should not change.
  4. Not enough information in the article to answer the question.
Ans. B

2. Assuming that the two Dutch firms merge to create one large firm, what will happen to that marketís concentration ratio in the Netherlands?
  1. Ratio should rise because the number of firms is rising.
  2. Ratio should rise because the number of firms is falling.
  3. Ratio should fall because the number of firms is rising.
  4. Ratio should fall because the number of firms is falling.
ANS. B

3. True/False. Under a Dutch auction, you only need to outbid your closest rival.

ANS. False

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