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by Ira Lanes
June 04, 2009
What is an auction?

An auction is the process of buying or selling certain goods or services. An item or service is put up for bid and sold to the highest bidder. The word auction comes from the Latin which simply means "to increase."

There are several ways that an item or service may be auctioned off. Basically, an auction is done by having an item or service put up for bid and sold to whoever makes the highest offer. However, an auction may have several rules or conditions that have to be met. There may be a time limit imposed or a reserve or minimum price bid. There may even be a maximum price bid. There may be special rules for determining who wins the auction and places the winning bid.

There are auctions when other bidders do not know who they are bidding against and what the other participants are doing. Auctions may be held through different ways; on site, through the telephone or online. Auctions may be arranged depending on the sellers and buyers' desired medium.

What are some types of auctions?

There are several tyes of auctions. Here are the primary ones.

English - This is the most common form of auction where participants bid openly against each other until the reserve price is met or exceeded. Bidding continues until no one wants to go any higher.

If the reserve price is not met, the item or service is not sold. There must be at least two bidders for the English auction.

Dutch - If an English auction is an open ascending price auction, the Dutch auction is just the opposite. A Dutch auction or open descending price auction is where the auctioneer starts with an asking price that is high and lowers it until a buyer is willing to take the price set by the auctioneer.

Sealed first price - All bidders submit their sealed bids at the same time so that the other participants do not know what the others' bids are. No adjustments to the bid are made. The highest bidder then pays the price they submitted. This is very common for government contracts and mining leases. This type of auction is also known as first-price sealed-bid auction.

Vickrey Auction - This is similar to the sealed first price bid with one major difference. The winning bidder will pay the second highest bid price rather than their own. This is an important part of auction theory. However, the Vickrey auction is rarely used in actual practice.

The above mentioned auction types are the major ones. There are secondary auctions types like All-pay auctions, Buyout auction and combinatorial auction to name a few.

Almost anything and everything can be sold at auction. Some of the typical goods and services being auctioned off may include antiques, collectibles, rare wines, real property, commodities livestock and tickets. The range of items being put on the auction block is wide and diverse.

Auctions have come a long way since their inception. However, the basic premises that auctions are based on have remained largely unchained. Auctions are now able to reach a wider range of people with the advent of online auctions.

Whether auctions are held as fundraisers for charity, personal gain, in accordance with a court order or for some other reason, you can be sure that there are rules to follow. Find out what type of auction is being held and watch out for your favorite items to come up on the auction block.

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