Question

An increasing number of charities have turned to online auctions as a way to raise money by selling unique experiences donated by celebrities (such as a meet-and-greet with a celebrity before a concert or a walk-on role on a television show). Why would the use of auctions lead to a better outcome for the charity as opposed to just setting a fixed price? Explain using the concepts of consumer surplus and producer surplus.

Answer 1

Consumers establish the prices they are willing to pay at auctions and the price they are willing to pay may be higher than the fixed price.