Auction
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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.
Auctions benefits
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.
Examples of Auction
- Live Auction: This is a traditional auction that takes place in person, with a live auctioneer, where goods are auctioned off to the highest bidder. Examples of goods that can be sold through a live auction include antiques, collectibles, artwork, furniture, and cars.
- Online Auction: This is a modern form of auction that takes place online and uses a bidding system to determine the highest bidder. Examples of goods that can be sold through an online auction include electronics, clothes, jewelry, and tickets.
- Sealed Bid Auction: This is a type of auction where bids are sealed and submitted to the auctioneer, who then opens them and awards the item to the highest bidder. Examples of goods that can be sold through a sealed bid auction include real estate, vehicles, and boats.
- Reverse Auction: This is a type of auction where buyers compete for a seller’s business by submitting bids for goods or services. The lowest bid is the winner. Examples of goods that can be sold through a reverse auction include consulting services, construction services, and advertising services.
Limitations of Auction
Auction can be an efficient and effective way to buy and sell goods, but it also comes with a few limitations. Some of the main limitations of auction include:
- Limited knowledge: Bidders may not always have full knowledge of the item they are bidding on and so may end up overpaying or buying something that is not authentic or of low quality.
- Risk of item damage: Since items are not always inspected before being auctioned, there is a risk of the item being damaged or not working properly.
- Potential fraud: Auctions can also be vulnerable to fraudulent activities such as bid rigging and shill bidding.
- Unpredictable outcomes: The outcome of auctions is often unpredictable, so there is no guarantee that the seller will get the best price for the item.
Auction is one of the forms of organized market where transactions of purchase and sale are entered. There are several other approaches related to auctions:
- Reverse auction – a type of auction in which the roles of buyer and seller are reversed, with the primary objective to drive prices down. It is used to help procure goods and services at the lowest price possible.
- Dutch auction – a type of auction in which the initial price starts high, and is gradually reduced until a bidder accepts the price.
- Sealed-bid auction – a type of auction in which all bidders simultaneously submit sealed bids so that no bidder knows the bid of any other participant.
- Vickrey auction – a type of auction in which the bidding process is used to determine the market value of an item.
In conclusion, auction is a form of organized market where transactions of purchase and sale are entered. There are several other approaches related to auctions, such as reverse auction, Dutch auction, sealed-bid auction, and Vickrey auction.
References
- Klemperer, P. (1999). Auction theory: A guide to the literature. Journal of economic surveys, 13(3), 227-286.
Author: Katarzyna Ruszała
