Impact of Electronic Auctions on Health Care Markets – Smits & Janssen 2008

Question 1

What are the 5 types of auction mechanisms? (Smits & Janssen, 2008)

Answer 1

• Ascending Price auction: Buyers start bidding at the reserve price (minimal price) and bid until the highest bid wins
• Dutch auction: Sellers lower the price until a bidder is willing to pay that amount
• Discriminatory price auction: Dutch auction with multiple items of the same article. Bids are sorted from how to low and assigned until no item is left.
• Vickrey auction: Rules to choose the winning bid (first price wins or second price wins)
• Reverse English auction: the bids (by care providers) are raised until no one bids higher

Question 2

What four factors of electronic markets does Shephard (1985) distinguish? (Smits & Janssen, 2008)

Answer 2

• External determinants: demand elasticity, learning processes, electronic auctions, public policies
• Market structure: market shares concentration, entry barriers
• Market behaviour: collusion with rivals, strategies, advertising, auction mechanisms
• Market performance: prices, profits, innovation, efficiency

Question 3

What is the effect of electronic market on market structure, behavior and performance? (Smits & Janssen, 2008)

Answer 3

Electronic markets affect market structure because they can influence the number of market participants. Increase if they improve accessibility and decrease if they make high entry barriers.
Market behavior can be influenced because more market information can be made available to all or some market participants (information (as)symmetry.
Market performance can be influenced because electronic markets can lead to lower transaction costs, more transactions per hour and more complex transactions can be executed by auction-robots.
Also, auction mechanisms can affect markets due to lower prices, faster transactions, more transactions, higher prices etc.
See last 2 pages of the article summary for detailed description