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2nd Hand Mobile Auction ​

In this article we are going to explore a simplified version of a 2nd Hand Mobile Auction to see how the supply demand move the price.

Table of Contents

The Seller ​

Lets say there was a seller who bought a MI Phone for ₹ 15,000/- in a flash sale of 15 min period. As you know that a phone which is sold in flash sale means that phone is in high demand.

This seems the reason for this seller who bought this phone to make profit from hungry buyers who want this phone badly. The seller didn’t even open the phone in the hopes to get a premium price.

Seller-Bought-Phone

The Auctioneer ​

Now the seller goes to mobile shop to get buyers. Lets call this mobile shop as Auctioneer. Auctioneer will have some commission to sell the phone to potential buyers. The seller tells the situation and lists the price of the phone as ₹ 16,000/-. This is ₹ 1000/- Profit.

Now the Auctioneer lists this Unopened Brand New Phone for ₹ 16,000/-. After hungry buyers get a wind of this phone they visit the shop with their pricings.

Buyer-at-Auction

The Buyer ​

As you can see in the above image there are 3 Buyers each one with different pricings. Why is that let me elaborate.

  1. Buyer 1 = ₹ 15,000/-
  2. Buyer 2 = ₹ 15,500/-
  3. Buyer 3 = ₹ 16,000/-

Buyer 1 listed for 15,000 thinking that MRP is final price as its company final price no more than that. As we all know this is true because you can’t go above MRP as its not the fair price its overpriced. As his point of view came to this conclusion.

Buyer 2 listed for ₹ 15,500/-. Why did the Buyer 2 go beyond the MRP but not with listed price of ₹ 16,000/- by the Seller doesn’t he think that its overpriced. Of course Buyer 2 knows its overpriced but he’s gone till ₹ 15,500/- and not till the Sellers price as he’s desperate to get the phone but not that much right now.

Buyer 3 listed for ₹ 16,000/-. He knows the Seller’s price is overpriced but he is desperate buyer he’s wants the phone as soon as possible.

A Few Possible Reasons Why Buyer 3 Might Make This Decision:

  1. Urgency: The buyer 3 may have an urgent need for the phone, such as replacing a broken device or fulfilling a professional requirement. In such cases, the buyer might be willing to pay a higher price to meet their immediate needs.
  2. Limited alternatives: The buyer may have exhausted other options and found that this particular seller is the only one offering the phone at the moment. If other sellers are not available or cannot provide the phone within the desired timeframe, the buyer may feel compelled to accept the overpriced offer.
  3. Convenience: The buyer might prioritize convenience and time savings over getting the best deal. They may not want to spend additional time and effort searching for a better-priced phone or waiting for a lower-priced offer to become available. In this case, the buyer may choose to pay more for the sake of convenience.
  4. Lack of negotiation skills: The buyer might not feel confident in their ability to negotiate a lower price or may not have the time or inclination to engage in bargaining. As a result, they might accept the overpriced offer rather than risk losing the opportunity altogether.

It’s important to note that while these reasons might justify the buyer’s decision from their perspective, it’s generally advisable to compare prices, explore other options, and consider the value for money before making a purchase, especially if the price is significantly higher than the market average.

For the demonstration purpose we gonna keep it till 3 buyers. So as we can see all the buyers listing price to buy has arrived to the Auctioneer. Now to the next process.

Price Discovery ​

Before we go further in our Mobile Auction in Local Market lets understand what is price discovery.

Price discovery is different from valuation. In the above Mobile auction example the MRP of 15,000 is valuation. Price discovery process involves buyers and sellers arriving at a transaction price for a specific item at a given time. It involves the following:

  1. Buyers and seller (number, size, location, and valuation perceptions)
  2. Market mechanism (bidding and settlement processes, liquidity)
  3. Available information (amount, timeliness, significance and reliability) including futures and other related markets
  4. Risk management choices.
  5. “Market” is a broad term that covers buyers, sellers and even sentiment. A single market will have one or more execution venues, which describes where trades are executed. This could be in the street for a street market, or increasingly it could be an electronic or “virtual” venue. Examples of electronic execution venues include NSE Exchange, The London Metal Exchange, NYSE, London Stock Exchanges.

Price discovery is a summation of the total market’s sentiment at a point in time: a multifaceted, aggregate view on the future. It is how every price in every market is determined.

The market price is important as it is a factor in the pricing at off market execution venues and direct and indirect derived products. For example, the price of oil has a direct bearing on the cost of tomatoes in cold climates.

In a dynamic market, the price discovery takes place continuously while items are bought and sold. The price will sometimes fall below the duration average and sometimes exceed the average as a result of the noise due to uncertainties, and transient changes in supply caused by the act of buying and selling: trading.

A closed market has no price discovery; the last trade price is all that is known. It is common in some markets not to use the actual last traded price but some sort of average / weighted mean. This is to prevent price manipulation by the execution of outliers on or at market close.

The Negotiation ​

Now that we know what price discovery is lets get into our mobile auction. Here the Auctioneer has offer of ₹ 16,000/- and matching bid from Buyer 3 for ₹ 16,000/-.
Will the mobile get sold for ₹ 16,000/- to Buyer 3 ? No now the Auctioneer will start the negotiation process (Price Discovery at work). Lets see where this goes.

Auctioneer will contact the Buyer 1 and tell the current situation of price. The buyer 1 tell that he is not interested at this offer price and quits. Now there are 2 Buyers remaining.

Auctioneer now contact the Buyer 2 and tell the current situation of price. The Buyer 2 tells that he is increasing the bid to ₹ 16,100/- The Buyer 2 might have increase the bid due to one of these circumstance discussed above.

Now Auctioneer relays this to Buyer 3, hearing this he increase his bid to ₹ 16,500/- again Auctioneer goes to Buyer 2 and updates him. Buyer 2 updates his bid to ₹ 16,600/-

Again Buyer 3 updates his bid to ₹ 17,000/- and Auctioneer goes to Buyer 2 and updates him and Buyer 2 looking at the current offer is not interested and quits.

The Agreement ​

As there is no buyer to compete the Auctioneer sells to the Buyer 3 for ₹ 17,000/- a whooping ₹ 2,000 profit. In short Seller’s plan worked made profit and the Buyer 3 also got the product cause he agreed for that price although he got for the highest price in market context he made loss.

Supply-over-Demand

Demand Has Overwhelmed Supply ​

In the above example,

  • Demand consisted of multiple buyers all wanting to buy and willing to pay higher prices to do so.
  • Supply consisted of a single seller, willing to allow price to increase until there are no more buyers.
  • Demand has overwhelmed Supply, leading to price rallying.
  • Price continued to rally until there were no more buyers willing to pay a higher price.

Now lets look the same scenario with different condition i.e. when buyer’s win.

Supply Has Overwhelmed Demand ​

Buyers-Scenario

Now in the above image you can see same condition as above i.e. Sellers wants to profit like the last time. Auctioneer has listed offer price of ₹ 16,000/- and the all the 3 buyers biding is as follows:

  1. Buyer 1 – ₹ 15,500
  2. Buyer 2 – ₹ 15,000
  3. Buyer 3 – ₹ 15,800

As you can see none of the above bid is matching the current offer which means these buyers are tough crowd but seller still has time to wait for new buyers because its a brand new unopened mobile piece with high demand.

Lets bring in a new Twist in this Market. There is Breaking news about this Mobile floating around.

js
Breaking News  
Battery Exploded of 6 Brand New MI Phones of Model No XA921
That Were on Recent Flash Sale. 
Manufacturer Has Press Released Saying That Company Is Looking Into It.
Further Flash Sale Are Canceled Until Final Verdict.

Now the seller has got the wind of the news now he has no time to wait it out he tell The Auctioneer to sell to highest Bidder before all the buyers get wind of these news. He can still make profit form Buyer 3 (800 profit) or Buyer 1 (500 profit) or Buyer 2 (0 MRP Breakeven).

Sadly the news was already hit to the buyers and following offer bid round 1 takes place

  1. Auctioneer lowers the offer from ₹ 16,000 to Buyer 3’s bid ₹ 15,800 but Buyer 3 lowers the bid to ₹ 14,800 a whooping ₹ 1,000 less.
  2. Auctioneer lowers the offer from ₹ 15,800 to Buyer 1’s bid ₹ 15,500 but Buyer 3 lowers the bid to ₹ 14,500 a whooping ₹ 1,000 less.
  3. Auctioneer lowers the offer from ₹ 15,500 to Buyer 2’s bid ₹ 15,000 but Buyer 3 lowers the bid to ₹ 13,500 a whooping ₹ 1,500 less.

Now you have seen how the news change the direction of power from Seller to Buyer and the round 2 takes place and the seller wanna get out of this situation cuz the value dropped from breakeven i.e. MRP price of ₹ 15,000. Now we have to see how low seller goes to quit.

  1. Auctioneer lowers the offer from ₹ 15,000 to Buyer 3’s bid ₹ 14,800 but Buyer 3 lowers the bid to ₹ 13,000 a whooping ₹ 1,800 less.
  2. Auctioneer lowers the offer from ₹ 14,800 to Buyer 1’s bid ₹ 14,500 but Buyer 1 lowers the bid to ₹ 11,000 a whooping ₹ 3,500 less.
  3. Auctioneer lowers the offer from ₹ 14,500 to Buyer 2’s bid ₹ 13,500 but Buyer 2 lowers the bid to ₹ 11,500 a whooping ₹ 2,000 less.

As you can see value is going down like a rocket. The seller’s now no longer affords loss and wants to get out so he tells The Auctioneer to match the highest bid without lowering the price any further. So then start round 3

  1. Auctioneer lowers the offer from ₹ 13,500 to Buyer 3’s bid ₹ 13,000 but Buyer 3 lowers the bid to ₹ 12,000. The Auctioneer accepts this bid (As the new bid was greater then Buyer 1 and 2 and this information was unknow to Buyer 3 he accepts the ₹ 12,000 offer because he thought he won the deal) and the phone is sold to Buyer 3.

Demand-over-Supply

In the above example, despite only one seller, the desperation of that seller has been greater than the desperation of the buyers, resulting in price falling.

In this case,

  • Demand consisted of multiple buyers all holding out, the seller would take turns lowering the asking(offer) price.
  • Supply consisted of a single seller, allowing for price to decrease until it reached a point at which he was not willing to get any lower.
  • Supply has overwhelmed Demand.
  • Price has fallen until no-seller willing to sell at a lower price.

Hope you understood The Auction process of a local market which was Forward auction, next we are going to see the same process in stock market which happens electronically but slightly different Auction which is called The Dual Auction.

But before we dive into it we going to get to Types of Orders.

Fuck you all

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