Auctions and their Characteristics
An auction refers to the
business of buying and selling
goods or services by offering them for sale by way of an initial bid
price,
then taking bids pursuant of that initial price, and then selling to
the
highest bidder.
In
terms of economics, an
auction relates to the exchange of
goods and services and may be conducted by no one particular
methodology or set
of trading rules.
There
are a number of
different types of auction format,
such as time limits, minimum and maximum limits on bid prices, and
special
rules for determining the winning bidder and sale price.
Those
involved in an
auction may or may not be aware of the
identities or intended actions of other participants in the auction.
Although
not all auctions are conducted in the same way, in general, bidders may
participate either in person or acting on behalf of another in a number
of
ways, such as by telephone or the internet.
It
is normal practice for
the seller to pay the auctioneer a
commission which is based on an agreed percentage of the final sale
price
achieved.
No
two auctions are the
same and each has its particular
characteristics, such as pricing accuracy, or the time required in the
preparing and execution of the auction.
The
number of bidders who
are acting simultaneously is
particularly important. Open bidding over a period of time involving
numerous
bidders is most likely to result in a final bid that is very close to
the true
market value.
Where
there are few
bidders and each bidder is only allowed
one bid, although time is saved in this way, the winning bid may not be
a true
reflection of the market value. The time between the opening bid and
final bids
is of particular significance.
Auctions
can differ in
terms of the number of participants
that are bidding.
This is characterised by
the following situations:
Consider
a Supply
auction. There may, let us say, be A sellers
who are offering goods that one or more buyers are willing to bid for.
In
a Demand auction,
there may be, for example, B buyers who
bid for goods that are being sold.
In
a Double auction,
there may be B buyers who are bidding
to buy goods from A sellers.
Prices
are bid, or
offered, by buyers and asked for by
sellers. Auctions may also differ in the way in which bidding or asking
is
transacted.
Hence,
in an open
auction, the participants may repeatedly
bid and are aware of each other's previous bids. In a closed auction,
buyers
and sellers submit sealed bids.
Auctions
may differ
according to the price at which the item
is sold. This may consist of the initial or best price, the second
price, the
first unique price, or some other variant. Auctions may set a
reservation price
which is normally set at the minimum acceptable price for which the
product or
service may be sold or bought. However, on occasions, it may refer to
the
maximum, and not the minimum price, at which the transaction may occur.
In
the final analysis, an
auction generally refers to an
open, demand auction, with or without a reservation price, which is
sometimes
called the reserve, with the item sold to the highest bidder.
Auctions
– How To Succeed
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Auction
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