Auctions and Fashion

Both sellers and buyers are able to fulfill their own needs in the auction setting.

Auctions and Fashion

Disadvantages of Auctions

Despite these benefits and characteristics of auctions, the biggest disadvantage is the so-called Winner's Curse. This term refers to winning bidders who end up paying more for an item than it is truly valued at. The more information a bidder has about the item being auctioned off, the less likely the bidder is to be affected by the Winner's Curse.
Another disadvantage is the opportunities that exist for collusion among auction participants. Sellers can plant bidders to artificially inflate the bidding prices, thus increasing their own profits and costing bidders more. Bidders can also form rings. These rings include several people who agree not to outbid one another, then once the item is won for a lower price it is auctioned off among the members of the ring. Rings make it possible for bidders to get the items they want without paying too much, but they also can cheat the seller out of getting a price in close proximity to the item's actual value.
Regardless of these disadvantages, auctions have been proven to be effective marketplaces that work for the disbursement of a wide number of goods and services. Both sellers and buyers are able to fulfill their own needs in the auction setting. Often, this is simply not a possibility in fixed-price marketplaces.