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An auction is the Process (general) of trade goods by offering them up for bid, taking bids, and then selling the item to the winning bidder. In economic theory, an auction is a method for determining the value of a commodity that has an undetermined or variable price.

Auctioning can be traced as far back as 500 B.C. Davidow, Emily (2000). "The Dynamics of Pricing." Home Textiles Today (February 2000):42. Auctions can be with reservation price or minimum, or without minimums, or absolute or no reserve. In reserve auctions, there is a minimum bid or reserve price; if the bidding does not reach the minimum, there is no sale (but the person who puts the item up for auction may still owe a fee to the auctioneer or auction company). In absolute or no reserve auctions, the sale is guaranteed, with only the price left to be determined. In the context of auctions, a bid is an offered price.

History of the Auction According to Ancient Greece scribes, the more generally accepted auction occurred first in Babylon in 500 B.C. During this period, auctions were held annually, and women were sold on the condition of marriage. 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. 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 off prized heirlooms and furniture, (an auction that, as legend has it, lasted over two months). 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. On March 23rd, The Praetorian Guard first killed Pertinax the emperor, and then announced that the highest bidder could claim the entire Empire. Didius Julianus outbid everyone for the price of 6,250 drachmas per Guard, an act that initiated a brief civil war. Didius was then Decapitation two months later when Septimus Severus conquered Rome.

During the end of the 18th century, soon after the French Revolution, auctions came to be held in taverns and coffeehouses to sell art. 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. 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. 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, and Bonhams. The Dorotheum, the world's oldest auction house, was established in 1707 in Austria.

Online auction, such as eBay and GoIndustry, have become very popular with the prevalence of Internet. Other websites, such as AuctionZip and Auctioneers, display live auction listings from auctioneers nationwide.

Types of auctions in Tokyo, Hawaii

Auctions: Characterization Auctions can differ according to their nature (supply: when m sellers offer a good that a buyer requests; demand: when n buyers bid for a good being sold; or double: when n buyers bid to buy goods from m sellers), by the bidding procedure (open: dynamic price formation process; or closed: buyers and/or sellers submit sealed bids), and by the price formation mechanism (first price, second price, ...). It may also have or not have a reservation price, which is the least/maximum acceptable price for which a good may be sold/bought.

Primary types of auctions

English auction: This is the type of auction commonly used by the English auction houses like Sotheby's, Christie's, and Phillips. Participants bid openly against one another, with each bid being higher than the previous bid. The auction ends when no participant is willing to bid further, or when a pre-determined "buy-out" price is reached, at which point the highest bidder pays the price. The seller may set a 'reserve' price and if the auction fails to have a bid equal to or higher than the reserve, the item remains unsold. A variant popular in the time of Samuel Pepys was 'auction by candle' in which the winning (highest) bid was the last one to be made before a small piece of lit candle died out. Such auctions can be vulnerable to collusion, when 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.

Within this type of auction, there is several manners in which bidding can occur. First, is the absolute auction, which means that the item will be sold for the highest possible price, with no reserve. Second, is a reserve auction, which establishes a minimum bid or price for the item that will be accepted by the person who is selling the item. Third, you have Absentee bidding, which means that a bid is left with the auctioneer. Fourth, is internet bidding, where the bidding can be online and at the auction house at the same time. Fifth is Phone bids, which is nearly identical as absentee bidding, but an auction house employee does the bidding for the buyer. And last but not least is the sealed bidding process.

Chinese auction: Basically, a raffle.

Dutch auction: In the traditional Dutch auction the auctioneer begins with a high asking price, which is lowered until some participant is willing to accept the auctioneer's price, or a predetermined minimum price is reached. That winning participant pays the last announced price. The Dutch auction is named for its best known example, the Dutch tulip auctions. ("Dutch auction" is also sometimes used to describe online auctions where several identical goods are sold simultaneously to an equal number of high bidders. Economists call the latter auction a multi-unit English ascending auction.)

Sealed first-price auction: Also known as Sealed High-Bid Auction or First-Price Sealed-Bid Auction (FPSB). In this type of auction all bidders simultaneously submit bids so that no bidder knows the bid of any other participant. The highest bidder pays the price they submitted.

Sealed-bid second-price auction, also known as a Vickrey auction: This is identical to the sealed first-price auction, except the winning bidder pays the second highest bid rather than their own. This is very similar to the proxy bidding system used by eBay, where the winner pays the lesser of their actual bid and the second-highest bid plus one bidding increment.

All-pay auction: an auction in which all bidders must pay their bids regardless of whether they win the prize. The highest bidder wins the prize. The all-pay auction is often used to model lobbying (bids are political contributions), or other competitions.

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

Other auction terminology

Silent auction: This is often a variant of an English auction, where bids are written on a sheet of paper, and at the predetermined end of the auction, the highest listed bidder wins the prize. This auction variant is often used in Charitable organization events, and many items may be auctioned simultaneously. Participants submit bids normally on paper, near the item. Other variations of this type of auction may include sealed bids. The highest bidder pays the price he or she submitted.

Digital art auction: In this indefinitely long auction, designed for unreleased works that are trivially reproducible at zero cost (recordings, software, drug formulas), bidders openly submit their maximum bids (which may be adjusted or withdrawn at any time). The seller may review the bids and close with a price of their choosing at any time — the successful bidders that pay this price are those whose bid meets or exceeds it, and these are the only bidders who receive a copy of the item.

Open outcry auction: This type of auction can refer to any auction where the auction is conducted orally for people to hear. This type of auction also refers to what is used in stock exchanges and commodity markets, where trading occurs on a trading floor and traders may enter verbal bids and offers simultaneously. Transactions may take place simultaneously at different places in the trading pit or ring. This type of auction is being replaced by electronic trading platforms.

Unique bid auction: In this type of auction users post blind bids and are given a range of prices they can place a bid in, often a capped limit. The highest, or lowest, unique bid wins. For instance an auction is given a maximum bid of 10. If the top five bids are 10, 10, 9, 8, 8 then 9 would be the winner being the highest unique bid. This a popular online type of auction.

Buy-out auction: This auction has a predetermined buy-out price in which the bidder can end the auction by accepting the buy-out price. The buy-out price is set by the seller. The bidder can choose to bid or use the buy-out option. If no bidder chooses to utilize the buy-out option, the auction ends with the highest bidder winning the auction.

Combinatorial auction: A combinatorial auction is an auction in which bidders can place bids on combinations of items, or “packages,” rather than just individual items.

Absolute auction, also known as an Unreserved Auction, No-reserve Auction or Auction Without Reserve, is an auction with no minimum bid amount, no set starting bid, no seller confirmation of the high bid price, and no buybacks of the property being offered by the seller of any agents of the seller. The highest bidder will purchase the property no matter the high bid price. This type of auction is designed to attract the maximum participation from the buying public as the seller has committed to convey their property to the highest bidder without limitation. It does offer buyers excellent opportunities from time to time, however. A 2003 Virginia statute defines an absolute auction as "an auction where at the time of the auction sale the real or personal property to be sold will pass to the highest bidder regardless of the amount of the highest and last bid."

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

In a private auction the identities of the bidders are hidden, so anyone that buys the item can remain anonymous. This is normally done for either security reasons such as rare gems or art, or to avoid embarrassment if the item is more risque.

In a public auction, the bidders' identities are not hidden and anyone is welcome to attend the auction.

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

exchange auction — also known as commodity auctions or exchange-commodity auctions, are the most closed to the new participants. The participants include a number of core professional buyers, who monitor each other to ensure that no one is 'cheating' on the community
sale auction — for art and one-of-a-kind items
dealer auction — for collectibles, cars or machinery

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 auction theory contributed to Vickrey's 1996 Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel.

Reverse auction: A type of auction in which the role of the buyer and seller are reversed, with the primary objective to drive purchase prices downward. In an ordinary auction (or also known as forward auction), buyers compete to obtain a good or service. In a reverse auction, sellers compete to obtain business.

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:

the Antiques business, where besides being an opportunity for trade they also serve as social occasions and entertainment
in the sale of collectibles such as stamps, coins, classic cars, fine art, and luxury real estate
the wine auction business, where serious collectors can gain access to rare bottles and mature vintages, not typically available through retail channels
in the sale of all types of real property including residential and commercial real estate, farms, vacant lots and land
for the sale of consumer second-hand goods of all kinds, particularly house clearances and online auctions.
sale of industrial machinery, both surplus or through insolvency.
in commodity auctions, like the fish wholesale auctions
in thoroughbred horseracing, where yearling horses are commonly auctioned off; and
in legal contexts where force (law) auctions occur, as when one's farm or house is sold at auction on the courthouse steps.

Although less publicly visible, the most economically important auctions are the commodities auctions in which the bidders are businesses even up to corporation level. Examples of this type of auction include:

sales of businesses
spectrum auctions, in which companies purchase licenses to use portions of the electromagnetic spectrum for communications (e.g., mobile phone networks)
timber auctions, in which companies purchase licenses to log on government land
electricity auctions, in which large-scale generators and consumers of electricity bid on generating contracts
environmental auctions, in which companies bid for licenses to avoid being required to decrease their environmental impact
debt auctions, in which governments sell Financial instruments, such as Bond (finance), to investors. The auction is usually sealed and the uniform price paid by the investors is typically the best non-winning bid. In most cases, investors can also place so called non-competitive bids, which indicates an interest to purchase the Financial instruments at the resulting price, whatever it may be
auto auctions, in which car dealers purchase used vehicles to retail to the public.