Auctions

1 Pages Posted: 23 Jun 2009

See all articles by Sherwood C. Frey

Sherwood C. Frey

University of Virginia - Darden School of Business

Dana Clyman

University of Virginia (UVA), Darden School of Business (deceased)

Abstract

This note describes four commonly used styles of auctions: English, Dutch, sealed-bid, and philatelist.

Excerpt

UVA-QA-0447

AUCTIONS

This note defines four commonly employed styles of auctions: English, Dutch, silent, and philatelist.

The English auction, also known as the ascending-price, open-outcry auction, is the form most English-speaking people think of when they think of an auction. An auctioneer seeks an initial bid from one of the assembled buyers with the expectation that those interested in the item will bid against each other until all but the highest bidder drops out of the bidding. The duty of the auctioneer is to obtain an initial bid and to acknowledge (and encourage) successive increases in an effort to realize the highest possible value.

The Dutch auction, also referred to as the descending-price auction, begins with the auctioneer quoting a high price. The auctioneer then quotes successively lower prices at a predetermined increment and pace until a bidder claims the item at the currently quoted price. Unlike the English auction where the bids are offers to buy, the enunciated prices in the Dutch auction are invitations to buy. In addition to being implemented orally, the descending-price auction can be implemented electronically using a price clock or other device to signal the successively decreasing prices. When electronic means are used, buyers may be able to press a button to stop the clock and signal their acceptance of the currently quoted price. This auction takes its name from the famous tulip markets in Holland and is used extensively in Europe and the Middle East.

The silent auction, otherwise known as the sealed-bid auction, is a process in which interested parties submit sealed bids for the item being auctioned. These bids are opened at a specified time and place. Generally, the highest bid wins the auction; however, this bidding process is also used when the seller wishes to consider a variety of issues beyond price when determining the most attractive bid. Examples include the selling of mineral rights and the awarding of government contracts.

The philatelist auction, also known as the Vickrey auction for the Nobel laureate who studied the properties of these auctions, is a variant of the sealed-bid auction. The highest bidder, as usual, wins the auction but only pays the second-highest bidder's price. This bidding process is commonly used to auction rare stamps, hence its original name.

This technical note was prepared by Sherwood C. Frey Jr., Ethel Corporation Professor. Copyright ã 1993 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to . No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. Rev. 7/01.

. . .

Keywords: management-decision models, management science, probability, quantitative analysis, general, salesmanship, selling

Suggested Citation

Frey, Sherwood C. and Clyman, Dana, Auctions. Darden Case No. UVA-QA-0447. Available at SSRN: https://ssrn.com/abstract=1422935

Sherwood C. Frey (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

HOME PAGE: http://www.darden.virginia.edu/faculty/frey.htm

Dana Clyman

University of Virginia (UVA), Darden School of Business (deceased)

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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