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An auctioneer and her assistants scan the crowd for bidders
An auctioneer and her assistants scan the crowd for bidders

An auction is a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the winning bidder. Trade is the willing exchange of goods, services, or both Trade is also called Commerce. In economic theory, an auction may refer to any mechanism or set of trading rules for exchange. Economics is the social science that studies the production distribution, and consumption of goods and services.

There are several variations on the basic auction form, including time limits, minimum or maximum limits on bid prices, and special rules for determining the winning bidder(s) and sale price(s). Participants in an auction may or may not know the identities or actions of other participants. Depending on the auction, bidders may participate in person or remotely through a variety of means, including telephone and the internet. Auctions are generally funded by a sales commission paid by the seller to the auctioneer or auction company. In addition to this there is sometimes a buyer's premium on the hammer price.

Contents

History of the Auction

Artemis, ancient Greek marble sculpture. In 2007, a Roman-era bronze sculpture of "Artemis and the Stag" was sold at Sotheby's in New York for $25.5 million, by far exceeding its estimates and setting the new record as the most expensive sculpture as well as work from antiquity ever sold at auction.
Artemis, ancient Greek marble sculpture. In Greek mythology, Artemis language|Greek] ( Nominative), ( Genitive))] was the daughter of Zeus and Leto, and the twin sister In 2007, a Roman-era bronze sculpture of "Artemis and the Stag" was sold at Sotheby's in New York for $25. Roman art includes the visual arts produced in Ancient Rome, and in the territories of the Roman empire. Bronze is the most popular metal for cast metal Sculptures; a cast bronze sculpture is often called simply a "bronze" In Greek mythology, Artemis language|Greek] ( Nominative), ( Genitive))] was the daughter of Zeus and Leto, and the twin sister In Greek mythology, Artemis language|Greek] ( Nominative), ( Genitive))] was the daughter of Zeus and Leto, and the twin sister Sotheby's ( is the world's second oldest Auction house in continuous operation (the oldest being Stockholms Auktionsverk founded in 1674 5 million, by far exceeding its estimates and setting the new record as the most expensive sculpture as well as work from antiquity ever sold at auction.
An 18th century Chinese meiping porcelain vase. Porcelain has long been a staple at art sales. In 2005, a 14th century Chinese porcelain piece was sold by the Christie's for £15.68 million, or $30.6 million. It set a world auction record for any ceramic work of art.
An 18th century Chinese meiping porcelain vase. Porcelain has long been a staple at art sales. Porcelain is a Ceramic material made by heating raw materials generally including Clay in the form of Kaolin, in a Kiln to temperatures An art sale is the practice of selling objects of Art by Auction. In 2005, a 14th century Chinese porcelain piece was sold by the Christie's for £15. Christie's is a leading art business and a fine arts Auction house See also Pound (currency.The pound sign (" £ " or " ₤ " is the symbol for the Pound sterling —the currency of the 68 million, or $30. 6 million. It set a world auction record for any ceramic work of art. [1]

Auctioning can be traced as far back as 500 B. C. [2] According to ancient Greek scribes, the more generally accepted auction occurred first in Babylon in 500 B. The term ancient Greece refers to the period of Greek history lasting from the Greek Dark Ages ca Scribes is a programmers' text editor for GNOME with a simple design Babylon was a City-state of ancient Mesopotamia, the remains of which can be found in present-day Al Hillah, Babil Province, Iraq C. During this period, auctions were held annually, and women were sold on the condition of marriage. NOTICE TO WOULD-BE ROMEOS ************** It was considered illegal to allow a daughter to be sold outside the auction method. Women with “beauty” engendered higher bidding, women without “beauty” had to pay a dowry to be accepted into the auction, and thus the price would be negative.

During the Roman Empire, following military victory, Roman soldiers would often spear the ground to mark the location of spoils in which goods and property were seized. The Roman Empire was the post-Republican phase of the ancient Roman civilization, characterised by an autocratic form of government and large territorial Roman business agents were said to have accompanied warriors into battle to help facilitate expected sales. The Romans also used the auction to liquidate their own property. For example, Marcus Aurelius is said to have auctioned prized heirlooms and furniture, (an auction that, as legend has it, lasted over two months). Marcus Aurelius Antoninus Augustus (often referred to as "the wise" ( April 26, 121 – March 17, 180) was Roman Emperor The most legendary auction occurred in the year 193 A. D. when the entire Roman Empire was put on the auction block by the Praetorian Guard. The Praetorian Guard ( Latin: PRÆTORIANI was a special force of Guards used by Roman Emperors Before being appropriated On March 23rd, The Praetorian Guard first killed Pertinax the emperor, and then announced that the highest bidder could claim the entire Empire. Publius Helvius Pertinax, commonly known as Pertinax ( August 1, 126 &ndash March 28, 193) was a Roman emperor who briefly Didius Julianus outbid everyone else for the price of 6,250 drachmas per Guard, an act that initiated a brief civil war. Marcus Didius Severus Julianus (133 or 137–193 was briefly Roman Emperor from 28 March 193 to 1 June 193. Didius was then beheaded two months later when Septimius Severus conquered Rome. Decapitation (from Latin, caput, capitis, meaning head or beheading, is the cutting off of the head of a person or animal Lucius Septimius Severus (or rarely Severus I) ( April 11 145 - February 4 211) was a Roman general and Roman Emperor

During the end of the 18th century, soon after the French Revolution, auctions came to be held in taverns and coffeehouses to sell art. The French Revolution (1789–1799 was a period of political and social upheaval in the History of France, during which the French governmental structure previously an A tavern or pot-house is loosely a place of Business where people gather to drink Alcoholic beverages and more than likely also be served Food A coffeehouse ( French / Portuguese: café; Spanish: cafetería; Italian: caffè Such auctions were held daily, and catalogs were printed to announce available items. Such Auction catalogs are frequently printed and distributed before auctions of rare or collectible items. An auction catalog is a catalog that lists items to be sold at an Auction. Many of these catalogs may be very elaborate works themselves, with considerable details about the items being auctioned.

During the American civil war, goods seized by armies were sold at auction by the Colonel of the division. Causes of the war See also Origins of the American Civil War, Timeline of events leading to the American Civil War The coexistence of a slave-owning South Colonel ( RP ˈkɜnəl GA ˈkɜrnəl is a Military rank of a Commissioned officer, with corresponding ranks existing in almost every country Thus, some of today's auctioneers in the U. S. carry the unofficial title of "colonel". Auctioneers are usually trained in the legal and practical aspects of conducting auctions. Some jurisdictions require auctioneers to be licensed and bonded.

Major auction houses include Christie's, Sotheby's, Lyon & Turnbull, Bonhams and J. "Auctioneer" redirects here For the DC Comics supervillain see Auctioneer (comics. Christie's is a leading art business and a fine arts Auction house Sotheby's ( is the world's second oldest Auction house in continuous operation (the oldest being Stockholms Auktionsverk founded in 1674 Lyon & Turnbull is a privately owned international Auction house based in Scotland. Bonhams is a privately owned British auction house founded in 1793 P. Humbert Auctioneers Ltd. The Stockholms Auktionsverk, the world's oldest auction house, was established in 1674 in Sweden. In the United States, Butterfield and Butterfield (now Bonhams and Butterfields), Skinner and are among the major players. Butterfield and Butterfield was a large American Auction house, founded in 1865 by William Butterfield in San Francisco. A relatively recent phenomenon is the specialty house such as Rago, which does exclusively 20th century decorative arts and furnishings.

Internet auctions, such as eBay and eBid have become very popular with the prevalence of Internet. The online auction business model is one in which participants bid for products and services over the Internet. eBay Inc is an American Internet company that manages eBaycom an Online auction and shopping Website in which people and businesses buy and eBid is an online auction website founded in December 1998 eBid operates in eighteen countries United Kingdom, United States of America, Canada Other websites display live auction listings from auctioneers nationwide.

Auctions held by members of the United States Executive Branch are commonly held which feature property that was seized that was, to what they believed, used in the event of a crime. The issue of the morality of this process is debated and is what some would compare to the act of stealing. In Criminal law, theft (also known as stealing or filching) is the illegal taking of another person's Property without that person's freely-given

Types of auction

JEL Classification

In the Journal of Economic Literature JEL classification codes D stands for "Microeconomics" with code D4 for "Market Structure and Pricing" and subcodes JEL:D44 for "Auctions" and D46 for "Value Theory". The Journal of Economic Literature (JEL is a leading Economic Journal published by the American Economic Association. Articles in economics journals are usually classified according to the system used by the Journal of Economic Literature (JEL (C7 for "Game Theory" and C78 for "Bargaining Theory").

Auctions: Characterization

Tuna auction at the Tsukiji fish market in Tokyo
Tuna auction at the Tsukiji fish market in Tokyo
Fish auction in Honolulu, Hawaii
Fish auction in Honolulu, Hawaii

Auctions can differ in the number of participants:

Prices are bid (or offered) by buyers and asked by sellers. Tsukiji fish market (Japanese 築地市場 Tsukiji shijō) is the biggest Wholesale Fish and Seafood market in the world and also one of the officially, is one of the 47 prefectures of Japan and located on the eastern side of the main island Honshū. Honolulu is the Capital and most populous Census-designated place (CDP in the U The State of Hawaii ( or həˈwaɪʔiː Hawaiian: Mokuāina o Hawaii) is a state in the United States located on an Archipelago in the Auctions may also differ by the procedure for bidding (or asking, as the case may be):

Auctions may differ as to the price at which the item is sold, whether the first (best) price, the second price, the first unique price or some other. Auctions may set a reservation price which is the least/maximum acceptable price for which a good may be sold/bought. In Microeconomics, the reservation (or reserve) price is the maximum price a buyer is willing to pay for a good or service; or conversely the

Without modification, auction generally refers to an open, demand auction, with or without a reservation price (or reserve), with the item sold to the highest bidder. In Microeconomics, the reservation (or reserve) price is the maximum price a buyer is willing to pay for a good or service; or conversely the

Supply auction
Supply auction
Demand auction
Demand auction
Double auction
Double auction

Primary types of auction

In some cases, bids may be made by an absentee (called Commission Bidding), by leaving them with the auctioneer, or by phone or by Internet (in which case live bids may also be visible online).

A variant popular in the time of Samuel Pepys was the Candle auction 'auction by an inch of candle' in which the winning (highest) bid was the last one to be made before a small piece of lit candle died out. Samuel Pepys, FRS (23 February 1633 – 26 May 1703 was an English naval administrator and Member of Parliament, who is now most famous for Candle auction was used from about 1490 to 1893 and is occasionally used even today for ceremonial purposes (and on-line [3]

Such auctions can be vulnerable to collusion: Two or more bidders act together to win the auction. Following the auction result, the "loser" threatens to sue the winner, who then proposes a settlement. The settlement is actually the pre-agreed reward for the loser's cooperation. This strategy was described by the economist Susan Athey. Susan Carleton Athey (born November 29, 1970) is an American Economist.

All of the private value auctions listed above are revenue equivalent assuming complete information, meaning that they all result in the same expected revenue for a seller.

Time requirements

Each type of auction has its specific qualities such as pricing accuracy and time required for preparing and conducting the auction. The number of simultaneous bidders is of critical importance. Open bidding during an extended period of time with many bidders will result in a final bid, that is very close to the true market value. Where there are few bidders and each bidder is allowed only one bid, time is saved, but the winning bid may not reflect the true market value with any degree of accuracy. Of special interest and importance during the actual auction is the time elapsed from the moment that the first bid is revealed to the moment that the final (winning) bid has become a binding agreement.

Dutch auction or (a low) Posted price are pricing methods, used when speed is important. Swedish auction or French auction are used when accurate pricing is important. Asking price, English auction or First price auction are used in most other cases. The diagram shows typical time requirements:

     (Asking price)        x     x            x    x      Swedish auction                x      Simplified Swedish auction  x      Candle auction        xx            x      x       x English auction    x       x                French auction     x Dutch auction  x   Second price auction       Swiss auction                x      x   First price auction  x  (Posted price)       0    10   20    1    5   10    1   10   20   1   12    Seconds         Minutes         Days       Months

English auction (since 1674) is used for chattel (20 seconds), art, antiques (90 seconds) and (especially in Australia) for real estate (10 minutes). The most typical form of English auction is the Open outcry auction A valuation and/or a SOB Suggested Opening Bid is announced. At least two bidders are required.

Candle auction (since 1490) preceded English auction. Candle auction was used from about 1490 to 1893 and is occasionally used even today for ceremonial purposes (and on-line (15 to 20 minutes).

Dutch auction (since 1887) is used for wholesale cut flowers, tobacco, farm products, fish and other perishables. A Dutch auction is a type of Auction where the auctioneer begins with a high Asking price which is lowered until some participant is willing to accept the auctioneer's (4 seconds).

First price auction (or sealed bids) (since 1770) is used for industrial real estate, building contract work and whenever only one or very few bidders are expected to participate. (1 second).

Swiss auction (since 1950) is used for building contract work, where the winning bid is subject to certain conditions. The bid is thus not immediately binding for the winning bidder. (5 days).

Second price auction (or Vickrey auction) (since 1961) is used for treasury bills. A Vickrey auction is a type of sealed-bid Auction, where bidders submit written bids without knowing the bid of the other people in the auction (1 second).

French auction (or Tâtonnement or Walrasian auction) (since 1874) is used for gold, stocks and bonds. A French auction ( Offre à Prix Minimal, formerly Mise en Vente) is a uniform-price Auction used for pricing Initial public offerings in (4 to 20 seconds).

Swedish auction (or Swedeauction) (since 1982) is used for various types of family homes. (10 days). Spectrum auctions are usually of this type too. A spectrum auction is a process whereby a government uses an Auction system to sell the rights to transmit signals over specific electromagnetic wavelengths. The General Services Administration GSA uses on-line auctions that are practically the same as Swedish auction. The General Services Administration ( GSA) is an Independent agency of the United States government, established in 1949 to help manage and support the basic functioning GSA is the United States government agency for the sale of surplus real estate.

Simplified Swedish auction (since 2002) is used for most family homes in Sweden's metropolitan areas. (4 days).

Asking price is not an auction. Ask price, also called offer price, offer, asking price, or simply ask, is a Price a seller of a good is This pricing method emerged about 1200 B. C. for chattel in Iraq. It is still used for chattel, second-hand cars and real estate, especially outside the metropolitan areas. (Lasting one year in a business recession). In a rising market, what starts as an Asking Price, may eventually become an English Auction, if surprisingly many bidders show up.

Posted price is not an auction. This pricing method emerged about 2000 B. C. for real estate in Israel and was reintroduced in 1850 at new department stores in France: "The price you see, is the price you pay". It is mostly used for massproduced products such as food, new retail articles and newly-built real estate. (1 second). Since 1980 a barcode often instantly sets the price at the check-out counter.

SOB, Suggested Opening Bid

There will always be some kind of (rough) estimate as to what the object will fetch. In an ascending open auction it is considered important that there should be at least a 50 percent increase in the bids from start to finish. To accomplish this the auctioneer must start the auction by announcing a Suggested Opening Bid, SOB, that is low enough to be immediately accepted by one of the bidders. Once there is an Opening Bid there will quickly be several other higher bids submitted. Experienced auctioneers will often select an SOB that is about 45 percent of the (lowest) estimate. Thus there is a certain margin of safety to ensure that there will indeed be a lively auction with many bids submitted. Several observations indicate, that the lower the SOB, the higher the final winning bid will be. This is due to the increase in number of bidders attracted by the low SOB. When 50 bidders compete with each other the winning bid will be about twice as high as when only two bidders compete. Often with Swedish auction and sometimes with English auction there will be more than 50 bidders. The most typical form of English auction is the Open outcry auction

Real life observations conducted in 1992 at an auction at Stockholms Auktionsverk indicated that for very similar oil paintings a SOB of SEK 150,000 gave a winning bid of only SEK 90,000. On the other hand a SOB of SEK 75,000 gave a final bid of SEK 125,000. At least theoretically then a SOB of SEK 60,000 would have given SEK 135,000. (Painted around 1800 by Pehr Hilleström). Pehr Hilleström ( 1732 - 1816) was a Swedish artist and since 1794 a professor at the Swedish Royal Academy of Art.

A Chi-square distribution shows many low bids but few high bids. In Probability theory and Statistics, the chi-square distribution (also chi-squared or \chi^2  distribution) is one Bids "show up together"; without several low bids there will not be any high bids.

Another approach to choosing a SOB: The auctioneer may achieve good success by asking the expected final sales price for the item, as this method suggests to the buyer the amount of the item's particular value. For instance, say an auctioneer is about to sell a $1,000 car at a sale. Instead of asking $100, hoping to entice wide interest (for who wouldn't want a $1,000 car for $100?), the auctioneer may still suggest the opening bid of $1,000; although the first bidder may finally begin bidding at a mere $100, the final bid may more likely approach $1,000.

FPQ, Final Price Quotient

Estimations shown in Auction catalogs are based on market appraisals. Estimation is the calculated Approximation of a result which is usable even if Input data may be incomplete or uncertain. An auction catalog is a catalog that lists items to be sold at an Auction. The (winning) final bids may be well above or well below estimates. There is often a (secret) Reservation price which is often set at 80 percent of the estimate. In Microeconomics, the reservation (or reserve) price is the maximum price a buyer is willing to pay for a good or service; or conversely the The estimate may also serve as a SOB. The FPQ, Final Price Quotient will normally be in the 0. 8 to 2. 8 range, but can occasionally land very far outside these limits. (An extreme example reached in 2006 is a FPQ of 1107 for a Rubens oil-painting at Uppsala auktionskammare). Sometimes a minimum acceptable bid is announced instead of a SOB or an estimate.

Bid shading involves placing a bid at only 80 percent of the SOB (or sometimes even lower). In an Auction, bid shading describes the practice of a bidder placing a bid that is below what they believe a good is worth This way Winner's curse is avoided. The winner's curse is a phenomenon akin to a Pyrrhic victory that occurs in common value Auctions with Incomplete information.

Other auction terminology

In terms of security/privacy, there are two main types of auctions:

In terms of auctioneers and auction items, we can differentiate three types of auctions:

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 (or second-price sealed-bid) auction, the pricing rule is more complicated, but preserves the property that bidders will bid their true valuation. It is also possible to auction each identical item individually. Once each item has been priced, the winning bidder is entitled to buy the remaining goods at the same price. Items the winning bidder opts not to purchase are auctioned again. This system creates a tension between the desire to hold back on bidding since later items will almost certainly be cheaper, and the chance that by losing the first round of bidding all possibility of purchasing will be lost.

Work in the theory of auctions contributed to William Vickrey's 1996 Bank of Sweden Prize. Auction theory is an applied branch of Game theory which deals with how people act in Auction markets and researches the game-theoretic properties of Auction William Spencer Vickrey ( June 21, 1914, Victoria British Columbia - October 11, 1996, New York State), US citizen The Nobel Memorial Prize in Economic Sciences, officially named The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (Sveriges riksbanks pris i ekonomisk ("Nobel Prize").

Collusion

Whenever bidders at an auction are aware of the identity of the other bidders there is a risk that they will form a “Ring” and thus manipulate the auction result. By agreeing to bid only against outsiders, never against members of the “Ring”, competition becomes weaker, which may dramatically affect the final price level. After the end of the official auction, an unofficial auction will take place among the “Ring” members. The difference in price between the two auctions will then be split among the “Ring” members.

On the opposite side, the owner of the object being auctioned may increase competition by taking part in the bidding himself (but drop out of the bidding just before the final bid). In Britain and many other countries Rings and the bidding on one's own object are illegal. See collusion. Collusion is an agreement usually secretive which occurs between two or more persons to deceive mislead or defraud others of their legal rights or to obtain an objective forbidden

In an English auction a dummy bid is a bid made by a dummy bidder acting in collusion with the auctioneer or vendor, designed to deceive genuine bidders into paying more. In a First price auction a dummy bid is an unfavourable bid designed so as not to become the winning bid. (The bidder does not want to win this auction, but he wants to make sure that he will be invited to the next auction).

In South Australia a Dummy bid (shill, schill) is a criminal offence but a Vendor bid or a Co-owner bid below the Reservation price is permitted, if clearly declared as such by the auctioneer. A shill is an associate of a person selling goods or services or a political group who pretends no association to the seller/group and assumes the air of an enthusiastic customer In Microeconomics, the reservation (or reserve) price is the maximum price a buyer is willing to pay for a good or service; or conversely the These are all official legal terms in Australia, but may have other meanings elsewere. A Co-owner is one of two or several owners (who disagree among themselves).

In Sweden and many other countries there are no legal restrictions, but it will severely hurt the reputation of an auction house that knowingly permits any other bids except genuine bids. If the reserve is not reached this should be clearly declared.

Common uses for auctions

Auctions are publicly and privately seen in several contexts and almost anything can be sold at auction. Some typical auction arenas include the following:

Farm clearing sale, Woolbrook, NSW.
Farm clearing sale, Woolbrook, NSW.
Grass-fed cattle at auction, Walcha, NSW
Grass-fed cattle at auction, Walcha, NSW
Wool buyers' room at a wool auction, Newcastle, NSW.
Wool buyers' room at a wool auction, Newcastle, NSW. Cattle, colloquially referred to as cows, are domesticated Ungulates a member of the Subfamily Bovinae of the family

Although less publicly visible, the most economically important auctions are the commodities auctions in which the bidders are businesses even up to corporation level. A business (also called firm or an enterprise) is a legally recognized organizational entity designed to provide goods and/or services to A corporation is a separate legal entity usually used to conduct business Examples of this type of auction include:

See also

Further reading

References

  1. ^ Chinese Jar Sets Record for Asian Art. The New York Times.
  2. ^ Davidow, Emily (2000). "The Dynamics of Pricing. " Home Textiles Today (February 2000):42.
  3. ^ R. W. Patten (Summer 1970). Tatworth Candle Auction. Folklore Vol. 81, No. 2 132-135. Folklore Enterprises, Ltd. . Retrieved on 2007-02-13. Year 2007 ( MMVII) was a Common year starting on Monday of the Gregorian calendar in the 21st century. Events 1258 - Baghdad falls to the Mongols, and the Abbasid Caliphate is destroyed

External links

The Open Directory Project ( ODP) also known as dmoz (from directory

Dictionary

auction

-noun

  1. A public event where goods or property are sold to the highest bidder.

-verb

  1. To sell at an auction.
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