The English auction is an auction format with repeated public bidding, in which the highest bidder (lowest if a procurement auction) wins the auction and pays (is paid) their bid. The classic form of English auction is an open outcry auction, with the auctioneer soliciting higher bids until no more bids are forthcoming.
There are many variations in English auction practice, in both form (yelling versus hand signs versus electronic) and rules (hard versus soft close).
Variations edit
There are many variations on this auction system. Sometimes, the reserve price is not revealed. The auctioneer might do this to prevent rings, groups of bidders who promise not to outbid each other, lowering the final price[citation needed]. Also, bids may be made with signals instead of being called out. Such signals can include tugging an ear or raising a bidding paddle. This system reduces the noise from the auction[citation needed]. Another variation on the English auction is the open-exit auction, where the bidders must announce that they are dropping out of the bidding and they can't reenter. This tells more about how valuable people consider the item up for bid than a regular English auction[citation needed]. In France, when the last bid has been made in an auction for an art object, a member of the Louvre can say "Préemption de l'état" (Pre-emption of the state) and buy the object for the highest bid. Some housing cooperatives similarly allow members of the cooperative to pre-empt any buyer of a house constructed by the cooperative[1].
English auctions may end at a specified time, or they may end when no new bids have been made after a period of time.
Comparison to other auctions edit
Strategic equivalence edit
More generally an auction mechanism is considered "English" if it involves an iterative process of adjusting the price in a direction that is unfavorable to the bidders (increasing in price if the item is being sold to competing buyers or decreasing in price in a reverse auction with competing sellers). In contrast, a Dutch auction would adjust the price in a direction that favored the bidders (lowering the price for buyers, increasing it for sellers). When the auction involves a single item for sale and each participant has as an independent private value for the item auctioned, the outcome of an English auction is theoretically equivalent (or isomorphic) to that of the Vickrey auction. Both the Vickrey and English auction, although very different procedurally, award the item to the bidder with the highest value at a price equal to the value of the second highest bidder. [2]
Advantages and Disadvantages edit
An English auction has several advantages and disadvantages for both the buyers and the seller. Winner's curse is rampant in these auctions due to strong competition and inexperienced participants getting carried away in the heat of the moment[citation needed]. This is good for the seller. But, the object on sale can be bought for much less than its value if bidding is slow, and rings can take advantage of the nature of English auctions[citation needed]. A disadvantage for both buyers and sellers with the English auction is that everyone must be in communication over the course of the auction, which can be expensive and difficult.
An English auction also has the advantage of price discovery. This effect is particularly useful for goods with a currently unknown market value, such as works of art. Unlike the Dutch auction, the seller in an English auction does not limit the maximum possible bid ex-ante.
See also edit
Notes and References edit
- ^1 OBOS, a housing cooperative in Oslo that practices preemption.
References edit
- ^ OBOS is a housing cooperative in Oslo which allows its members to pre-empt whenever one of their houses are sold
- ^ Tuomas Sandholm. Limitations of the Vickrey Auction in Computational Multiagent Systems. Proceedings of the Second International Conference on Multi--Agent Systems, 299-306, 1996.
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