Four prevalent types of auctions

Four prevalent types of auctions

This article will cover the four varieties of auctions that one may come across in the real world. Furthermore, the advantages and disadvantages are also discussed.

The English auction

This is the most common type of auction and it is also called the open ascending type of auction. It starts by bidding a smaller amount by the buyers and gradually the amount rises until there is no higher price for bidding. The last person who has bid for the highest price will win the deal and it will be sold to them. If the dealer has a predefined reserved price, then it is made sure the highest bid exceeds the reserved price, or the item will not be sold to any person. Know more about Americana auctions

The biggest strategy of the bidder in an English auction is to bid a price less than the actual value of the item. In the real-world scenario, there exists a term called the “Winner’s Curse”, which refers to the circumstance when a bidder behaves irrationally and bids a price that’s higher than his/her value of the item.

The Dutch auction

It is just the opposite of the English type of auction. It is called the open descending auction. The dealer will start with a high value and bidders will bid down from this high price. That is the bid price will go down until a bidder’s willing to take it. Dutch auctions usually take a shorter duration to complete. If there are more items to bid, the bidding process will continue until the supply is equal to demand.

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The SEALED_BID auction

This is an auction that happens online. It is used for the purposes such as

  • Commodities
  • Real estate
  • Advertisements
  • Construction contracts

It is used by many countries’ governments for foreign exchange, selling inventory, and refinancing credit.

This is an auction where the bidders will send their prices to the seller and the seller will compare and find the winner for the best price. The winner will pay the highest price and will take the item. This is called the first price sealed-bid auction.

If there are more items it will go to the second highest price bidder. The second price-sealed bid auction is called the Vickrey auction. Which is named after the Nobel Memorial Prize in Economic Sciences winner in 1996 William Vickrey for his study in auctions.

The double auction

Double auction is a type of auction that is commonly used for commodities. It works well for items that bidders know well about since they need to precisely evaluate the item. A perfect reference for a double auction would be the Institutional sale and purchases of stocks/shares. It is the third-party middle person or a match between the bid price and ask price is found and a trade is executed when the match is found. The buyers and sellers will post their acceptable prices to a board/list and a double auction will find a match.