Auctioning of special/fancy car numbers – case of artificial price scarcity or finding hidden market?

It is really interesting to figure economics lessons from newspapers and other general readings.

Bangalore Times of India had news about how a car number got auctioned for Rs 3.5 lakhs yesterday:

What would you do if you had a few lakhs to spare? While most people would go in for a fixed deposit, invest in the stock market or splurge on a foreign holiday, participants at a public event chose to do otherwise. They were attending the auction for the allotment of fancy registration numbers at theBMTC head office in Shanthinagar.

The transport department racked up a whopping Rs 28.23 lakh through 20 successful bids. A firm called Cornerstone made the highest bid of Rs 3.5 lakh to get the coveted number KA-03/NA-0001. In the two years since the implementation of the government order calling for such auctions, the events have seen exorbitant bids, the highest amount being Rs seven lakh, said s ources from the department.

 Bidders were willing to shell out large amounts to obtain the number they des ired. While some were bound by superstitious beliefs, for the others, it was a matter of prestige. Bidding for most numbers started at a modest Rs 1,000.
 Having bid Rs 99,000 to get the number 0909, the representative of a furniture company said all the cars belonging to their owner bore the same number.”The car was bought some time ago; we were only waiting for this auction. They wanted this number to be reserved”, he said.
 
Builders and developers UTC India Pvt Ltd’s Ganguhanumaiah was insistent on getting 0099 for all his vehicles, this being the third time he successfully bid f or this combination. “He considers it his lucky charm. This is the largest amount we have paid so far. Earlier, we got it for as less as Rs 1,000 and Rs 30,000. He is willing to pay anything,” said his representative. It was the third such auction for the Indiranagar Regional Transport Office (RTO) this financial year. Those interested in participating were asked to submit the application along with a demand draft for Rs 75,000, an amount that is refunded in case the individual fails to get the registration number of his/her choice. In 2015-2016, Rs 1,06,42,000 was raised through such auctions.
One of the winners who is an agriculturist from Coorg came to get the family number 1111 (only in print edition and not in the online). He said these auctions are creating an artificial scarcity. This in turn led to rise in prices. Earlier one could just walk into RTO and get a registration number for a paltry sum.
Hmm.. This is more a case of finding value of hidden markets. People have always had high reservation prices for their preferred car numbers. But the government having a monopoly over all these activities, didn’t have ideas about how to capture these rents. They have now figured a market way of auctions to and not the usual govt ways of threat etc.
One way to bring these costs down would be to limit govt monopoly over these allotting car numbers. But this will lead to additional issues. The other way is for people to not really respond aggressively to these auctions. The idea would be to hide your true reservation price from the government. Otherwise the govt will always figure ways to capture them as they hold monopoly over these activities.
Interesting lessons here….

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