Auction
An auctioneer and her assistants scan the crowd for bidders
Auctions are publicly seen in several contexts: in the antique business, where besides being an opportunity for trade they also serve as social occasions and entertainment; in the sale of collectibles such as stamps, coins, classic cars, and fine art; in thoroughbred horseracing, where yearling horses are commonly auctioned off; and in legal contexts where forced auctions occur, as when one's farm or house is sold at auction on the courthouse steps.
Although less publicly visible, the most economically important auctions are those in which the bidders are businesses or corporations. Examples of this type of auction include:
- spectrum auctions, in which companies purchase licenses to use portions of the electromagnetic spectrum for communications (for cell phone networks, for example.)
- timber auctions, in which companies purchase licenses to log on government land.
- electricity auctions, in which large-scale generators and consumers of electricity bid on generating contracts.
- procurement auctions, in which companies submit bids on a government contract. In this situation the auction is reversed and the winner will be the company that submits the lowest bid to perform the work.
- environmental auctions, in which companies bid for licenses to avoid being required to decrease their environmental impact.
- debt auctions, in which governments sell debt instruments, such as bonds, to investors. The auction is usually sealed and the uniform price paid by the investors is typically the best non-winning bid. In most cases, investors can also place so called non-competitive bids which indicates an interest to purchase the debt instrument at the resulting price, whatever it may be.
The world's two largest auction houses are Christie's and Sotheby's. The world's largest online auction site is eBay.
Auction catalogs are frequently printed and distributed before auctions of rare and/or collectible items; these catalogs may be very elaborate works, with considerable details about the items being auctioned.
Bidders in the traditional Dutch auction and sealed first-price auction will tend to underbid what they believe the item is truly worth in hopes of getting the item for less, or in order to avoid the winner's curse. This behavior is known as bid shading. These two auctions are also theoretically equivalent, but in practice Dutch auctions will produce less revenue than sealed first-price auctions (one of the important results of Experimental economics)
Work in the theory of auctions contributed to Vickrey's 1996 Bank of Sweden Prize.Types of Auctions
Some commonly used types of auctions are:
If more than one identical item is sold, there are two possible generalizations of the second-price auction. In a uniform-price auction, all of the winning bidders pay the price submitted by the highest non-winning bidder. Bidders will not typically bid their true value in a uniform-price auction with multiple units. In a Vickrey auction, the pricing rule is more complicated, but preserves the property that bidders will bid their true valuation.