Ask YC: Auction-based pricing?

We are organizing a coworking office space in Sofia, Bulgaria. One of our biggest problems is finding the right price to ask for rent, as the difference in income for freelancers here can be as big as 15 times.

Therefore, we are leaning towards auctioning off the 30 office spaces one by one. (Technically, the 30 best bids will win, with the minimal bid being the cost of electricity and water for the person.)

Pros:

- Maximal usage of office space. We better have 1 person pay $5/mo instead of leaving the workspace empty.

- If this is a blind auction, the best bid could be as much as twice the average.

- We can accommodate people from different levels of income (e.g., underpaid artists).

Cons:

- Confusion on behalf of people wanting to sign up.

- If the auction is open (everyone can see the bids) we won't get such a good price, because we don't think there will be more than 100 people bidding for the 30 places.

- Winner's curse. People may feel tricked if they pay more than their peers.

- We won't require a contract from renters, so at the end of each newly open space will be auctioned off. People that pay a price too high could leave and immediately make a lower bid for next month.

- Cartels. Given the relatively small number of people bidding, we can have groups of people agreeing not to outbid each other and thus driving our average price down.

- If the average price falls under our total expenses we are in for cash flow problems. However, this could also happen with a fixed price - if 1/3 of the people leave we are screwed.

Thoughts? Ideas? Should we go with a blind auction?

Yeah, second that. This is a real estate question that people who run office buildings and apartment buildings need to do all the time. You can have empty space if the other spaces make up for it. Or you can lower it month by month until you have all your spaces filled. You won't make the same amount of money each way, so you need to see how big the demand is and how much money you want to make. If you're feeling generous, lower the rent until all your spaces fill up, and then lower it some more.

If you're being altruistic, or want to cater to some really low budgets, you can have a "artist in residence" type program where you sponsor one or two spaces for free, or you can have a row of desks for single person freelancers that go for cheap.

The problem is the wide income distribution. One freelancer can make as many as 15 times the other one, so what's a fair price for one would be ridiculous for the other, and what's a fair price for the poor one would be under our break-even price. When it comes to apartments, 95% of the households fall within an x to 2x income range.

Look into a dutch auction - multiply the various bid amounts by the number of people that will pay that, and take the highest product - which all successful bidders pay. For example, it's better to fill 25 offices at $10 per month than 30 at $5. From a fairness perspective all winners are paying the same amount too, and any empty space can be rented out shorter term for larger amounts for inevitable short-term overflow needs.

However, the way you suggested is automatically unfair. You're assuming that a richer person will want to pay more (and they will) but that they won't feel unfairness when poorer people get a better deal. Unfortunately, even if I was rich, knowing the person next to me was getting cheaper rent just because they were poor (or less successful or less hardworking) would seem unfair.

You might want to offer different services or spaces for different amounts, cutting back costs and offering cheaper/smaller space to make the inequities real, and therefore justifiable.