Auction
Overview
An auction is a method of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder. The open ascending price auction is arguably the most common form of auction in use today.
History
Auctions have a long history, having been recorded as early as 500 B.C. According to Herodotus, in Babylon auctions of women for marriage were held annually. The auctions began with the woman the auctioneer considered to be the most beautiful and progressed to the least. It was considered illegal to allow a daughter to be sold outside of the auction method.
During the Roman Empire, following military victory, Roman soldiers would often drive a spear into the ground around which the spoils of war were left, to be auctioned off. Later slaves, often captured as the "spoils of war", were auctioned in the forum under the sign of the spear, with the proceeds of sale going towards the war effort.
The Romans also used auctions to liquidate the assets of debtors whose property had been confiscated. For example, Marcus Aurelius sold household furniture to pay off debts, the sales lasting for months. One of the most significant historical auctions occurred in the year 193 A.D. when the entire Roman Empire was put on the auction block by the Praetorian Guard.
Types of Auctions
There are several types of auctions, each with its own unique set of rules and procedures.
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. Participants bid openly against one another, with each subsequent bid required to be higher than the previous bid. An auctioneer may announce prices, bidders may call out their bids themselves, or bids may be submitted electronically with the highest current bid publicly displayed.
Dutch Auction
In a 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 for some quantity of the goods in the lot or until the seller's reserve price is met.
Sealed First-Price Auction
In this type of auction, also known as a first-price sealed-bid auction (FPSB), one copy of an item is available. Bidders submit written bids without knowing the bid of the other people in the auction. The highest bidder wins the item.
Vickrey Auction
This is a type of sealed-bid auction. Bidders submit written bids without knowing the bid of the other people in the auction. The highest bidder wins but the price paid is the second-highest bid. This type of auction is strategically similar to the English auction.
Auction Theory
Auction theory is an applied branch of economics which deals with how people act in auction markets and researches the properties of auction markets. There are many possible designs (or sets of rules) for an auction and typical issues studied by auction theorists include the efficiency of a given auction design, optimal and equilibrium bidding strategies, and revenue comparison.
Auction Fraud
Auction fraud is a fraudulent sale or attempted sale on an Internet auction site. Sometimes, after winning an auction, the successful bidder fails to pay. More frequently, the seller fails to deliver the goods that have been paid for. This is a form of Internet fraud.