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Understanding Auctions: Buying and Selling Through Bidding

thebbse@gmail.com July 26, 2023

An auction is a well-established method of buying and selling goods or services through a competitive bidding process. In this system, items or services are offered up for bids, and interested individuals, known as bidders, compete against each other to place higher bids. The item ultimately goes to the highest bidder, who takes possession of it after paying the winning bid price. Let’s delve into the different aspects of auctions, their history, and the various types commonly used.

The Auction Process

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Before an auction begins, potential buyers typically have a preview period to examine the items or services up for sale and assess their condition. Once interested bidders have completed their evaluation, they must register with the auctioneer, providing their contact details and identification. Each registered bidder is then assigned a unique bidder card, facilitating identification during the bidding process.

When the auction commences, the auctioneer initiates the bidding with an opening price, either set by them or based on a minimum bid price specified by the seller. Participants vocally call out their bids, with each bid being higher than the previous one. The auctioneer acknowledges the bids as they come in, ensuring a transparent process.

The bidding continues until no further bids are made, and the highest bidder, who offered the most substantial amount, emerges as the winner. The successful bidder takes immediate ownership of the item after paying the winning bid price.

Types of Auctions

  1. English Auction: Also known as an open outcry auction, the English auction is the most commonly used type today. Participants openly bid against each other, with each bid surpassing the previous one. The auctioneer sets the starting price and raises it progressively until the highest bidder’s offer is accepted. English auctions are prevalent in sales of wine, antiques, tobacco, and art.
  2. Dutch Auction: In this type, the auctioneer starts with a high asking price and gradually lowers it until a bidder accepts the current price, or the reserve price set by the seller is reached. The goods are then allocated based on the bid order, with the highest bidder having the first choice, followed by others in descending order. Dutch auctions are frequently used for perishable commodities like flowers and fish, as well as occasionally for investment securities.
  3. First-price Sealed-bid Auction: This auction involves all bidders submitting their sealed bids simultaneously, without any knowledge of the competitors’ bids. Each bidder can only submit a single bid, and they cannot change it once submitted. In a buyer-bid auction, the highest bidder wins the item at their bid price, whereas in a seller-bid auction, the lowest bidder earns the right to sell their goods for the highest bid accepted by a buyer. First-price sealed-bid auctions are commonly used in various contexts, including government contract tendering, mining leases, military procurement, refinancing credit, and foreign exchange.
  4. Second-price Sealed-bid Auction: Similar to the first-price sealed-bid auction, the highest bidder still wins the item, but they pay the price of the second-highest bid. For instance, if the highest bid was $500, and the previous high bid was $480, the winning bidder would only pay $480 for the item. This type of auction is often employed in automated settings, such as real-time bidding for online advertising.

History of Auctions

The concept of auctions dates back to approximately 500 B.C. in ancient Greece, where auctions were used to conduct marriage arrangements. Women were auctioned off for marriage, and the auctioneer would begin with the most beautiful woman and progressively lower the price until a bidder accepted the offer.

In the United States, early auctions were utilized to sell farm produce, estates, and even slaves. During the American Civil War, returning soldiers sold their war plunder through auctions, with only higher-ranked soldiers being allowed to do so.

Auctions gained prominence during the Great Depression as a means for individuals and businesses to quickly sell off assets and recover from financial distress. This led to the establishment of the first auctioneering school, Jones’ National School of Auctioneering and Oratory, in 1900.

With the technological advancements of the 1990s, auctions evolved, utilizing computers, cell phones, and fax machines to enhance efficiency. The emergence of online bidding platforms, such as eBay in 1995, revolutionized the auction industry and provided a vast marketplace for buyers and sellers alike.


Auctions have stood the test of time as an effective means of buying and selling goods and services. From their ancient roots to modern online platforms, auctions continue to offer a competitive and transparent process for transactions. Various auction types cater to different needs and products, ensuring that buyers and sellers can find the most suitable platform to fulfill their requirements. Whether it’s antiques, artwork, or commodities, auctions remain an integral part of commerce worldwide.