Auction - one of the forms of organized market where transactions of purchase and sale are entered. Commercial goods which are sold at auction, require a direct or indirect view of the object. Auctions are organized as public tender. The seller has a chance to get the best price. Auctions take place when there are many potential buyers for one item.
Auctions are held at specific locations and dates – that are called fixed actions. There are also emergency auctions, which are held when there is a need. This kind of auctions can be organized by the producers, other traders, warehouses, carriers, etc.
Auctions are generally advertised and open for all buyers. Trades are executed directly by the buyers or indirectly through brokers. Broker is an individual or party that arranges transactions between a buyer and a seller.
Auction of goods leads auctioneer, responsible for compliance with the established Rules of Procedure of the sale. Sale of goods is announced by the auctioneer. Act of purchase is confirmed by issuing the appropriate document. Nowadays, that often dispensed with traditional sale and introduced audiovisual technology and computers. It speeds up and facilitates transactions.
Kinds of auctions
Due to the conduct of the auction, we distinguish:
- English auction – open ascending price auction; auctioneer starts the auction from the lowest asking price – the lowest price which is acceptable by the seller. Participants bid against one another. Each subsequent price must be higher than the previous one. The auction ends, when participants is willing to bid further. This type of auction is arguably the most common form of auction in use today It's used for selling artworks, antiques or animals, such for example horses.
- Dutch auction – open descending price auction; auctioneer starts the auction with the highest asking price – the highest price for some quantity of like items. If the first proposal does not purchase, the auctioneer lowers the price until one of the buyers accept it and the seller's reserwe price is met. The Dutch auction is named for its best known example, the Dutch tulip auctions. This kind of auctions is also used for selling another cut flowers, fish or tobacco.
The main advantages of auctions are:
- it's quick and efficient method of selling large number of goods, what is essential for the sale of perishable ones,
- buyers have an opportunity to examine the goods, what helps making decisions,
- it helps in fair and objective valuation of the offered products, and achieving optimal price,
- it's effective way to prevent monopolization of the market,
- sellers have an opportunity to evaluate their own products to other sellers.
- Klemperer, P. (1999). Auction theory: A guide to the literature. Journal of economic surveys, 13(3), 227-286.
Author: Katarzyna Ruszała