Behind the Scenes

The combination of each person’s valuation and bid constitutes the auction. In the calculations, each person starts with a fixed dollar amount (in this case $1M). Concept ‘shares’ are assigned first to those who bid highest. When all shares of each concept are assigned, then the auction for that item closes. Those who bid too low don’t receive shares and retain their cash holdings. Overbidding is always undesirable but so is underbidding for it can freeze the bidder out of an opportunity. The table below shows some of the calculated details.

Computer Calculations	Bidder A
Investment in $`	% of Concept Desired
$600,000	30%
$-	0%
$400,000	8%
$1,000,000

Behind the scenes, the computer calculates how much each bidder values each concept and who gets which shares. In the example above, 'Bidder A’ is implicitly asking for 300,000 shares (60% of the investor’s $1M starting cash is $600,000. Asking for $600,000 of a $2M item is a request for 30% if it. A request for 30% of the 1M shares available is a request for 300,000 shares.) of ‘Item One’ at $2/share (An item valued at $2M with 1M shares outstanding has a valuation of $2/share).