Pinnacle Business Management (Prev SRCI)

[nealgalt]

Fung-there will be a minimum bid. The problem with Dutch auctions is that they are analyzable as prisoners dilemma games-in which the best game theoretical strategy leads to sub-par results.

Let's say there are ten bidders, a mimimum share price of ten dollars, a thousand shares, and that everybody reckons they can immediately resell the shares for twenty dollars. That would be a thousand dollar profit for a hundred share buy. If everybody subscribes for 100 shares at ten bucks a share everybody makes a quick grand.

However, say AlanC is one of the bidders. Being sneaky and evil he figures out that if he defects, and secretely puts in an order for a thousand shares at eleven dollars thinking "cool, I get all the shares and make a quick $9,000 profit." But then he thinks, "well, these other guys are sneaky too, so I better bid $18, get all the shares and settle for a $2,000 profit." The problem is that guru, riter,marc and nosurrender are just as evil, and they independently decide to do the same thing. Gatekeeper, spousal, MQ, Larry, and zippy, being evil AND stupid, decide to bid for a thousand shares each at $22 bacause the bashers told them they were only worth $20 max.

So the outcome now is that instead of everybody making a quick thou, Gatekeeper, spousal, MQ, Larry and Zippy end up with two hundred shares each and a quick loss of $400 each.