Primary Types of Auctions
- 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 higher than the previous bid. An auctioneer may announce prices, bidders may call out their bids themselves (or have a proxy call out a bid on their behalf), or bids may be submitted electronically with the highest current bid publicly displayed. In some cases a maximum bid might be left with the auctioneer, who may bid on behalf of the bidder according to the bidder's instructions. The auction ends when no participant is willing to bid further, at which point the highest bidder pays their bid. Alternatively, if the seller has set a minimum sale price in advance (the 'reserve' price) and the final bid does not reach that price the item remains unsold. Sometimes the auctioneer sets a minimum amount by which the next bid must exceed the current highest bid. The most significant distinguishing factor of this auction type is that the current highest bid is always available to potential bidders. The English auction is commonly used for selling goods, most prominently antiques and artwork, but also secondhand goods and real estate. At least two bidders are required.
- Dutch auction also known as an open descending price auction. In the traditional Dutch auction the auctioneer begins with a high asking price which is lowered until some participant is willing to accept the auctioneer's price. The winning participant pays the last announced price. The Dutch auction is named for its best known example, the Dutch tulip auctions. ("Dutch auction" is also sometimes used to describe online auctions where several identical goods are sold simultaneously to an equal number of high bidders.) In addition to cut flower sales in the Netherlands, Dutch auctions have also been used for perishable commodities such as fish and tobacco. In practice, however, the Dutch auction is not widely used.
- Sealed first-price auction, also known as a first-price sealed-bid auction (FPSB). 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.This type of auction is distinct from the English auction, in that bidders can only submit one bid each. Furthermore, as bidders cannot see the bids of other participants they cannot adjust their own bids accordingly. This kind of bid produces the same outcome as Dutch auction. Sealed first-price auctions are commonly used in tendering, particularly for government contracts and auctions for mining leases.
- Vickrey auction, also known as a sealed-bid second-price auction. This is identical to the sealed first-price auction except that the winning bidder pays the second highest bid rather than his or her own. This is very similar to the proxy bidding system used by eBay, where the winner pays the second highest bid plus a bidding increment (e.g., 10%). Although extremely important in auction theory, in practice Vickrey auctions are rarely used.
Multi-unit auctions sell more than one identical item at the same time, rather than having separate auctions for each. This type can be further classified as a uniform price auction or a discriminatory price auction.
Secondary Types of Auctions
- All-pay auction is an auction in which all bidders must pay their bids regardless of whether they win. The highest bidder wins the item. All-pay auctions are primarily of academic interest, and may be used to model lobbying/bribery (bids are political contributions) or competitions such as a running race.
- Bidding fee auction, also known as a penny auction, requires that each participant must purchase bids prior to placing them. When an auction's time expires, the last bidder wins the item and must pay a final bid price.. An example of this type of auction is Madbid.
- Buyout auction is an auction with a set price (the 'buyout' price) that any bidder can accept at any time during the auction, thereby immediately ending the auction and winning the item. If no bidder chooses to utilize the buyout option before the end of bidding the highest bidder wins and pays their bid. Buyout options can be either temporary or permanent. In a temporary buyout auction the option to buy out the auction is no longer available after the first bid is placed. In a permanent buyout auction the buyout option remains available throughout the entire auction until the close of bidding. The buyout price can either remain the same throughout the entire auction, or vary throughout according to preset rules or simply at the whim of the seller.
- Combinatorial auction is any auction for the simultaneous sale of more than one item where bidders can place bids on an "all-or-nothing" basis on "packages" rather than just individual items. That is, a bidder can specify that he or she will pay for items A and B, but only if he or she gets both. In combinatorial auctions determining the winning bidder can be a complex process where even the bidder with the highest individual bid is not guaranteed to win. For example, in an auction with four items (W, X, Y and Z), if Bidder A offers $50 for items W & Y, Bidder B offers $30 for items W & X, Bidder C offers $5 for items X & Z and Bidder D offers $30 for items Y & Z, the winners will be Bidders B & D while Bidder A misses out because the combined bids of Bidders B & D is higher ($60) than for Bidders A and C ($55).
- Generalized second-price auction
- Japanese auction is a variation of a English auction. When the bidding starts no new bidders can join, and each bidder must contiune to bid each round or drop out. It has similarities to the ante in Poker.
- Lloyd's syndicate auction. See .
- No-reserve auction (NR), also known as an absolute auction, is an auction in which the item for sale will be sold regardless of price. From the seller's perspective, 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. If more bidders attend the auction a higher price might ultimately be achieved because of heightened competition from bidders. This contrasts with a reserve auction, where the item for sale may not be sold if the final bid is not high enough to satisfy the seller. In practice, an auction advertised as "absolute" or "no-reserve" may nonetheless still not sell to the highest bidder on the day, for example, if the seller withdraws the item from the auction or extends the auction period indefinitely, although these practices may be restricted by law in some jurisdictions or under the terms of sale available from the auctioneer.
- 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 - that is, the seller reserves the right to accept or reject the highest bid. In these cases a set 'reserve' price known to the auctioneer, but not necessarily to the bidders, may have been set in advance below which the item may not be sold. The reserve price may be fixed or discretionary - in the latter case, the decision to accept a bid is deferred to the auctioneer, who may accept a bid that is marginally below it. A reserve auction is safer for the seller than a no-reserve auction as they are not required to accept a low bid, but this could potentially result in a lower final price than might otherwise be the case if this means that less interest is generated in the sale.
- Reverse auction is a type of auction in which the role of the buyer and seller are reversed, with the primary objective to drive purchase prices downward. While ordinary auctions provide suppliers the opportunity to find the best price among interested buyers, reverse auctions give buyers a chance to find the lowest-price supplier. During the reverse auction, suppliers may submit multiple offers, usually as a response to competing suppliers’ offers, bidding down the price of a good or service to the lowest price they are willing to offer. By revealing the competing bids in real time to each participating supplier, reverse auctions promote “information transparency”. This, coupled with the dynamic bidding process, improves the chances of reaching the fair market value of the purchase.
- Silent auction is a variant of an English auction where bids are written on a sheet of paper. At the predetermined end of the auction the highest listed bidder wins the item. This auction is often used in charity events, with many items auctioned simultaneously and "closed" at a common finish time. The auction is "silent" in that there is no auctioneer selling individual items, the bidders writing their bids on a bidding sheet often left on a table near the item. At charity auctions, bid sheets usually have a fixed starting amount, predetermined bid increments, and a "guaranteed bid" amount which works the same as a "buy now" amount. Other variations of this type of auction may include sealed bids. The highest bidder pays the price he or she submitted.
- Senior auction is a variation on the all-pay auction, that has a defined loser in addition to the winner. The top two bidders must pay their full final bid amounts, and only the highest wins the auction. The intent is to make the high bidders bid above their maximum limits. In the final rounds of bidding, when current losing party has hit their max bid, they are encouraged to bid over their max (seen as a small loss) to avoid losing their Max bid with no return (a very large loss).
- Top-Up auction is a variation on the all-pay auction, primarily used for charity events. Bidders must pay the difference between their bid and the next lowest bid, whether they win or not. Only the winning bidder does not have to pay the "top-up" fee, but does have to pay for the item.
- Walrasian auction or Walrasian tâtonnement is an auction in which the auctioneer takes bids from both buyers and sellers in a market of multiple goods. The auctioneer progressively either raises or drops the current proposed price depending on the bids of both buyers and sellers, the auction concluding when supply and demand exactly balance. As a high price tends to dampen demand while a low price tends to increase demand, in theory there is a particular price point somewhere in the middle where supply and demand will match.
- Auction by the candle. A type of auction usedi England for selling ships in which the highest bid laid on the table when a guttering candle expires, wins.
- Other auctions: Other auction types also exist such as Simultaneous Ascending Auction, Anglo-Dutch auction, Private value auction, Common value auction