Types of Auctions

 Types of Auctions

1.  English auction, also known as an open ascending price auction. This type of auction is arguably the most common form of auction in use today. An auctioneer may announce prices and participants bid openly against one another, with each subsequent bid required to be higher than the previous bid.
2.  Dutch auction, also known as an open descending price auction. In the traditional Dutch auction the auctioneer begins with a high asking price for some quantity of like items; the price is lowered until a participant is willing to accept the auctioneer's price. If the first bidder does not purchase the entire lot, the auctioneer continues lowering the price until all of the items have been bid.
3.  Sealed first-price auction or blind auction, also known as a first-price sealed-bid auction. In this type of auction, all bidders simultaneously submit sealed bids so that no bidder knows the bid of any other participant. The highest bidder pays the price they submitted.
4. A No-reserve auction, also known as an absolute auction, is an auction in which the item for sale will be sold regardless of price. Advertising an auction as having no reserve price can be desirable because it potentially attracts a greater number of bidders due to the possibility of a bargain.
5.   Reserve Auction is an auction where the item for sale may not be sold if the final bid is not high enough to satisfy the seller. We participate in an English, Reserve Auction at every meeting of the Greater Houston Coin Club.

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Types of Auctions

1)  English  Auction

• Bidders publicly announce their successive higher bids until no higher bid is forthcoming. 

• At that point, the auctioneer pronounces the item sold to the highest bidder at that bidder’s price. 

• This type of auction is also called an ascending price auction. 

• An English auction is sometimes called an open auction (or open-outcry auction) because the bids are publicly announced.

English Auction(Minimum Bid /Reserver Bid)

•  A minimum bid is a price at which an auction begins. 

• If no bidders are willing to pay that price, the item is removed from the auction and not sold. 

• In some auctions, a minimum bid is not announced, but sellers can establish a minimum acceptable price, called a reserve price, or simply reserve. 

• If the reserve price is not exceeded, the item is withdrawn from the auction and not sold.

Drawbacks of English Auction

•  Drawbacks for both sellers and bidders.

•  The winning bidder is only required to bid a small amount more than the next-highest bidder, winning bidders tend not to bid their full private valuations, which prevents sellers from obtaining the maximum possible price. 

• Bidders risk becoming caught up in the excitement of competitive bidding and then bidding more than their private valuations.

           ◦ This psychological phenomenon called the winner’s curse.

2.Dutch Auction

•  Open auction in which bidding starts at a high price and drops until a bidder accepts the price.

•  Because the price drops until a bidder claims the item, Dutch auctions are also called descending-price auctions. 

•  Farmers’ cooperatives in the Netherlands use this type of auction to sell perishable goods such as fruits/veg and flowers, which is how it came to be known as a “Dutch” auction.

• Used in Stock Market also. 

•  Use when seller offers a number of similar items for sale. 

• One common implementation of a Dutch auction uses a clock that drops the price with each tick. 

• The first bidder to call out “stop” which stops the clock, becomes the winning bidder. 

• The winning bidder can take all or any part of the auctioned items at that price. 

• If any items remain, the clock is restarted and continues to run until all the items are taken by successive lower bidders.

•  A Dutch auction is often better for the seller because the bidder with the highest private valuation will not let the bid drop much below that valuation for fear of losing the item to another bidder.

•  Dutch auctions are particularly good for selling large numbers of commodity items quickly.

3)  First-Price Sealed -Bid Auction

•  In sealed-bid auctions, bidders submit their bids independently and are usually prohibited from sharing information with each other. 

• In a first-price sealed-bid auction, the highest bidder wins. 

• If multiple items are auctioned, successive lower (next highest) bidders are awarded the remaining items at the prices they bid.

4)  Second-Price Sealed-Bid Auction

•  the highest bidder is awarded the item at the price bid by the second-highest bidder. 

• Why a seller would even consider such an auction because it gives the item to the winning bidder at a lower price??? 

        ◦ Because it yields higher returns for the seller, encourages all bidders to bid the amounts of their private valuations, and reduces the tendency for bidders to collude. 

            ◦ Because the winning bidder is protected from an erroneously high bid. 

• Commonly called Vickrey auctions. 

           ◦ William Vickrey

5.) Double Auction

•  Buyers and sellers each submit combined price quantity bids to an auctioneer.

•  The auctioneer matches the sellers’ offers (starting with the lowest price and then going up) to the buyers’ offers (starting with the highest price and then going down) until all the quantities offered for sale are sold to buyers. 

Open - Outcry Double Auctions

•  Double auctions can be operated in either sealed-bid or open-outcry formats.

• The buy and sell offers are shouted by traders standing in a small area on the exchange floor called a trading pit. 

• Each commodity or stock option is traded in its own pit. The action in a trading pit can become quite frenzied as 20 or 30 traders shout offers aloud. 

• Work well only for items of known quality, such as securities or graded agricultural products, which are regularly traded in large quantities. 

• Such items can be auctioned without bidders inspecting the items before placing their bids.

6)  Reverse(Seller -Bid ) Auctions

•  Multiple sellers submit price bids to an auctioneer who represents a single buyer. 

  ◦ Tender Calling 

• The bids are for a given amount of a specific item that the buyer wants to purchase.

•  The prices go down as the bidding continues until no seller is willing to bid lower. 

• In many business reverse auctions, the buyer acts as auctioneer and screens sellers before they can participate.

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1.  English Auctions 

• Bidders publicly announce their successive higher bids until no higher bid is forthcoming in the English auction. 

• The auctioneer pronounces the item sold to the highest bidder at that bidder’s price. 

• An English auction is an open auction because the bids are publicly announced.

•  An English auction has a minimum bid or reserve price. 

• English auctions that offer multiple units of an item for sale and that allow bidders to specify the quantity they want to buy are called Yankee auctions.

2. Dutch Auctions 

• A Dutch auction is a form of open auction in which bidding starts at a high price and drops until a bidder accepts the price. 

• Dutch auctions are also called descending-price auctions. 

• Dutch auctions are particularly good for moving large numbers of commodity items quickly.

3. Sealed-Bid Auctions 

• In sealed-bid auctions, bidders submit their bids independently and are usually prohibited from sharing information with each other. 

• In a first-price sealed-bid auction, the highest bidder wins.

• The second-price sealed-bid auction is the same as the first-price sealed-bid auction except that the highest bidder is awarded the item at the price bid by the second-highest bidder. 

• Second-price sealed-bid auctions are commonly called Vickrey auctions.

 4. Double Auctions

•  In a double auction, buyers and sellers each submit combined price-quantity bids to an auctioneer. 

• The auctioneer matches the sellers’ offers to the buyers’ offers until all the quantities offered for sale are sold to buyers. 

• Double auctions can be operated in either sealed-bid or open-outcry formats. 

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