Auction Information

Game Theory, Nobel Prize, & Auctions - Auction Primer Series - Part 1


William Vickrey, highly regarded as the founder of auction theory, was an economics professor at Columbia University when he published two papers outlining his views on auctions:

"Counterspeculation, Auctions, and Competitive Sealed Tenders", 1961, Journal of Finance

"Auction and Bidding Games", 1962, Recent Advances in Game Theory

In 1996 he received a Nobel Prize "for fundamental contributions to the economic theory of incentives under asymmetric information." It's important to understand that asymmetric information is an essential component of auctions, where potential buyers have varying levels of knowledge about the value of the item.

Although Vickrey considered his work on auctions as "one of my digressions into abstract economics, at best of minor significance in terms of human welfare", to those of us who work with online auctions, much of what he outlined is useful to understanding our marketplace.

Vickrey identified 4 general types of auctions:

English
Dutch
First-price sealed bid
Second-price sealed bid

English Auctions
The most common type of auction is the English Auction, although it may also be known as an ascending price auction. In ascending price auctions each subsequent bid is higher than the previous one. This is the most popular type of auction for single items.

Although traditional ascending price auctions use a "soft close" format - where bidding continues until a final bid is placed, the majority of today's on-line auction sites use the "hard close" format - also known as a 'time interval" auction having a set time limit, regardless of ongoing bidding. It's important to note that in a "soft close" format, bid snipping, that is bidding during the last few seconds or minutes on an item, is eliminated since the auction stays open as long as bids are being made.

In an attempt to minimize bid snipping and provide more of a "soft close" characteristic to their "hard close" auctions, eBay allows bidders to use "proxy bidding". In proxy bidding, a bidder enters the highest price they are willing to pay for an item when they first bid. The bid begins at the lowest possible level and increases automatically only if their original lowest bid has been beaten. For more in-depth information on the "proxy bidding capability on eBay go here.

http://pages.ebay.com/help/buy/proxy-bidding.html

Amazon.com currently offers a feature for their auctions called "Going, Going, Gone." The Going, Going, Gone" feature extends the end of an auction for 10 minutes if a bid is placed effectively creating a "soft close". For more information on the "Going, Going, Gone" feature on Amazon go here. http://www.amazon.com/exec/obidos/tg/browse/-/1161360/103-1666189-8415007#going-gone

From the buyers standpoint a "hard close" format is preferable since they may be able to make a final bid before others can react, possibly winning the auction at a lower price.

For sellers, a "soft close" format provides an opportunity to realize the maximum price for an item by removing the time restrictions for an auction. As long as bidders are bidding the auction remains open.

Dutch Auctions
As you may have guessed, the concept of the Dutch auction originates in the Netherlands. Unlike English auctions which utilize ascending price methods, Dutch auctions are descending price auctions and are commonly used when multiples of the same items are to be auctioned. In a Dutch auction the bidding starts at a relatively high price which is driven progressively downward by bids.

As an example of a Dutch auction let's say you had 10 items you wanted to sell for $20 each.

Bidder A bids $18 for 6 items
Bidder B bids $17 for 5 items
The final result is:
Bidder A would receive 6 items for $17 each
Bidder B would receive 4 items for $17 each

Please note that most Dutch auctions allow bidders to refuse an order for a lesser number of items than what they bid on. A "soft" or "hard close" format may be used in Dutch auctions although the most common is the "hard close".

First-price Sealed Bid Auctions
Sealed bid auctions differ from the English and Dutch in as much as the bids are not announced to other bidders. The individual bid is only know to the bidder and the seller. This type of auction may be either buyer-bid, where the highest bidder wins the item and pays the amount of their bid, or seller-bid, where the lowest bidder sells the item and is paid the amount of the bid. This form of auction is common for construction contracting, military procurement, foreign exchanges, and other types of goods.

Second-price Sealed Bid Auctions
Another common name for second-price sealed bid auctions is Vickrey auctions (named after William Vickrey) There is a slight variation to the first-price auction for Vickery auctions. In a buyer-bid auction the highest bidder buys the item and pays the amount of the second highest bid. Or in a seller-bid auction, the lowest bidder sells the item and is paid the amount of the second lowest bid.

The above descriptions provide a general overview of the most popular auction types in use today. Depending on the auction website these general categories may include a number of variations and options such as reserve pricing, open or closed venue, multiple items, fixed price and lot listings to mention a few. Before entering any particular type of auctions make sure you study and understand the rules for that specific type of auction, as the rules may vary from website to website.

Copyright © Steven Woodward - All Rights Reserved

Steven Woodward is the owner, editor and publisher of the Auction Sellers Network (ASN); a web site for individuals and companies who are serious about utilizing the online auction marketplace for their business. In addition to topical articles, ASN provides an extensive resource center, news feeds and member forums. For more information, or to become a member, please visit us at http://www.AuctionSellersNetwork.com

No permission is needed to reproduce an unedited copy of this article as long the About the Author tag is left in tact and included. We do request that we be informed of where it is posted and reciprocal links will be considered.


MORE RESOURCES:
This RSS feed URL is deprecated, please update. New URLs can be found in the footers at https://news.google.com/news


Wall Street Journal

Game Theory Part of the Art of the Sky Deal
Wall Street Journal
Blind-auction strategy is complex, as each side tries to figure out how much it needs to pay to win while trying to avoid overspending. It has fostered a cottage industry of auction consultants, many of whom hold doctorates in game theory, a branch of ...
Fox and Comcast are about to settle their $36 billion battle for Sky — here's what to expectCNBC
Sky takeover: Blind auction complicates bidding by Comcast, DisneyThe Australian
Comcast could blow Murdoch's Fox out of water with multi-billion pound auction bid for Sky in battle to own £26bn UK ...Daily Mail
CNN Money -CNN Money -List-manage.com
all 223 news articles »


The Packer

Massive fruit processing equipment auction scheduled
The Packer
Fruit processing and packaging equipment at a former Seneca Foods facility in Modesto, Calif., will be sold during a series of online auctions. The facility, used for packaging and warehousing the company's peach and fruit cocktail products, was closed ...



Architectural Digest

Memorabilia from Frank and Barbara Sinatra's Estate Will Be Up for ...
Architectural Digest
The live and online auctions will primarily draw from Frank and Barbara Sinatra's residences in Palm Springs and Malibu.

and more »


Business Insider

Comcast, Fox to Settle $35 Billion Takeover Battle for Sky in Weekend Auction
Wall Street Journal
The U.K. Takeover Panel, which polices deal making in the country, laid out rules for the auction on Thursday. It is a process the regulator hasn't run many times previously—and never before with such a large company as the prize. London-listed Sky ...
The fight for Sky may come down to a rare sealed auction this ...Business Insider
Fox, Comcast $35 billion takeover battle for Sky heads for one-day auctionCNBC
Comcast, Fox takeover battle for Sky to be decided by weekend auctionUSA TODAY
Reuters -MarketWatch -Bloomberg
all 868 news articles »


Art Newspaper

Red tape is stifling German auctions
Art Newspaper
German auction houses are struggling with increased bureaucracy and a shortage of high-quality consignments after the introduction of the country's cultural heritage protection law in 2016 by the culture minister Monica Gruetters. Some have even ...



Market Realist

Sprint's Plans before US Spectrum Auctions - Market Realist
Market Realist
The FCC (Federal Communications Commission) is planning to run two spectrum auctions beginning in November. The spectrum is anticipated to help mobile ...

and more »


South China Morning Post

Halt Hong Kong auctions ahead of laws on e-waste
South China Morning Post
Auctions have long been used by the government to get rid of confiscated items, surplus inventories and unwanted office appliances, and for good reason. Not only are they a convenient way to dispose of such items, but they also rely on market forces to ...



Reuters

Mexico's new president should postpone oil auctions: former Pemex official
Reuters
HOUSTON (Reuters) - A former Petroleos Mexicanos [PEMX.UL] board member said on Wednesday Mexican President-elect Andres Manuel Lopez Obrador has enough political support to change the nation's energy law and should postpone planned ...

and more »


Autoweek

Bring a Trailer's LaFerrari auction was internet gold
Autoweek
The auction circus surrounding a 95-mile LaFerrari on Bring a Trailer concluded without landing the car a new owner. The high bid of $3,125,000 USD failed to meet the seller's reserve price. However, the real action during the auction was in BaT's ...



ArtfixDaily

CRN AUCTIONS, INC., ANNUAL SEPTEMBER AUCTION
ArtfixDaily
On Sunday, September 30th, CRN Auctions will conduct their Annual Fall Auction of antiques and fine arts at their gallery in Cambridge, MA offering a mix of items ranging in geographical origin and spanning the 17th through mid 20th centuries. Among ...


Google News

home | site map
© 2006