Below the basic supply and demand graph, blue line is the supply and red one is demand. So now I'm supposed to explain the trend that we have seen on the market lately. Well first we were shifted strongly to the left sine we had little supply of houses but lots of people wanted to buy them (this was before the crisis) Then we went drastically to the right, during the crisis e.g. Detroit had a population of 2 million people before the crisis, after the crisis its back to 700,000 which is its population from a 100 years ago. Although now after the crisis especially in london we are moving back to the left side of the scale. Therefore people started introducing the sealed bid and everything else related. As you can see, we jump from one side of the spectrum to the other all the time.
2) Which factors have affected (a) the demand for rental properties and (b) the supply of rental properties? How is the elasticity of demand and supply relevant here in terms of the impact on price?
A) The demand for rental properties is affected by the amount of people changing housing and moving from one area to another, or the people who leave home and need to find their own place. The main demand for property comes from young people who can not afford huge villas and penthouses.
B) The supply of rental properties is not high enough for the huge demand there is after the crisis. As said people who arrive in London have to sleep on their friends couches since the prices of apartments have gone up a lot and banks dont give loans or barley any. Due to this the sealed bid has originated to make the bidding fair for the bidder as well as for the renter.
3) To what extent is a sealed bid format fair on potential tenants? Who does such a strategy favour?
This strategy is the fairest thing that people renting houses could come up with, the owner rents the house to the person who places the highest bid at the end of some time period. This is fair because it lets everyone try to go for the bid and as well as the owner of the apartment gets to make a profit of the property that is related to the demand for it. I believe this is a fair way of making business instead of almost giving the property away to someone and a second before signing the papers someone calls and says they will give 20% more.
4) How could this sealed bid strategy be an example of price discrimination?
The sealed bid strategy is an example of price discrimination due to that, if there are two similar apartments at an approximately same cost to rent out. One does the sealed bid strategy and there is no one really interested in the apartment although on the other apartment there is a fix price. Both apartments are rented out and one tendent for example pays 50% more than the one who won in the sealed bid.
5) What is likely to happen to your consumer surplus if you have to submit a sealed bid?
The consumer surplus actually increases since everyone is able to apply for the bid, although they might not win they can still bid. The consumer surplus is bigger than when a flat or apartment is at a certain cost since not everyone is able to pay that. Below just a simple diagram of what consumer surplus actually is.
What do you think?
Erlach
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