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Auction

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An auction is an event where goods or property are sold to the highest bidder. It is often considered the purest form of an open market because the participants determine the item’s value by placing bids based upon their own opinion of its worth.

An auctionable item can be almost anything, ranging from public land and livestock to construction contracts and equity shares. It is useful for selling goods without a fixed or determined market value.

There are four main styles of auctions, but many other alternative types as well. Buyers’ bidding styles will differ depending on the rules of each specific type of auction and whether or not the buyer plans on re-selling the item.

Contents

[edit] English Auction

This is also known as an open-outcry auction, or ascending price auction. Bids are not always made aloud, but are at least made so other participants can see, by signaling the auctioneer. The value amount of the opening bid begins at the lower end of the spectrum and each subsequent bid must be higher than the last. A “reserve” can be put on the item by the seller, which limits the lowest price the item can be sold for. If the reserved price is not reached, the item is not sold. The item can also be “unreserved,” meaning there is no minimum bid.

[edit] Dutch Auction

The Dutch auction is also known as a descending-price auction. Commonly used in the Netherlands for the sale of produce and flowers, this style of auction starts the value amount at the highest end of the spectrum and moves progressively lower until a buyer claims the item. This style generally works in the favor of the seller because a buyer is forced to act quickly if he really wants an item.

[edit] First-price Sealed Bid

The first-price sealed bid requires sealed bids, which means participants only know the amount of their own bid and ignorant of all others. One bid per participant is permitted. The item is rewarded to the highest bidder for the amount that he/she bid.

[edit] Vickrey Auction

Also known as a uniform second-price auction, the Vickrey auction is named after the 1996 winner of the Nobel Prize for Economic Sciences, William Vickrey. This style of auction also requires sealed bids. One bid per participant is permitted. The item is then rewarded to the highest bidder, but at the second-highest bidder’s price.

[edit] Double Auction

Both sellers and buyers submit bids ranked highest to lowest in a double auction. The sellers’ bids are read from lowest to highest, while buyers’ bids are read from highest to lowest. The price is set at the point where both lists crossover. This style is similar to haggling.

[edit] Simultaneous Bidding System

The simultaneous bidding system is an extremely fast auctioning system commonly used in Japan for the sale of fish. All bids are made at once with a series of hand signals representing monetary units. Item is rewarded to highest bidder.

[edit] Written-bid Auction

In this type of auction, all bids are made in written form, within a tight time limit. However, while actual bidding time is quite quick, sorting through all the bids slows down this system considerably.

[edit] Handshake Auction

This is one of the oldest auction types in existence. Buyers communicate to auctioneers by squeezing his/her fingers in certain way to represent monetary amounts (i.e. one finger for one, two fingers for two, etc.). The participants gather around a table, each reaching under the table to squeeze the hand of the auctioneer with their bid. As they squeeze a number of fingers they announce what monetary unit they are representing (i.e. tens, hundreds, thousands, etc.). They can erase their bid by scratching the auctioneer’s palm.

[edit] Whisper Auction

The whisper auction is similar to sealed bids, except the bid is whispered into auctioneer’s ear instead of written down.

[edit] Time-interval Auction

The time-interval auction used the same concept as the English auction, except with a strict time limit. A candle was cut to one inch and then lit. Whoever had the highest bid when the candle went out was rewarded the item.

[edit] Silent Auction

This consists of written, but unsealed, bids. The bids are written on a sheet of paper and each participant can make multiple bids. These auctions can go on for hours or days.

[edit] Audible-bid Rotation Auction

In this type of auction, bidding is done in a strict rotational pattern. Starting at one end, moving to the other, participants can raise or pass the bid in ascending amounts.

[edit] Swiss Auction

This is the same as first-price sealed bid auctions, except this style does not always require the highest bidder to accept and pay the amount he/she bid. It is commonly used for construction deals where contractors often make multiple bids for different projects at one time. The winning bidder dropping out is favorable for the seller because often the project is on a strict timetable and a contractor incapable of doing the job properly will only cause more problems. However, if there is a large difference between the highest and second highest bid, the highest bidder may be forced to accept the job.

[edit] References

Reynolds, Kate. Going... Going... Gone Agorics, Inc. 1996.