An auction is a venue or method for buying and selling where the sales price is not set in advance, but is determined by competition for the goods or services by and among the buyers. Auctions can take several forms, but at their heart is the competing motivation of buyers and sellers: the sellers want to realise the highest price for their goods, while buyers hope to get the goods at a bargain. Buyers make offers (called bids) for items, and the highest bidder wins the item. Tendering is a related concept where a buyer attempts to secure services at the lower price by receiving written bids. The most common type of auction, at least in the minds of most people, is the ascending price auction, but there are several others.
Types of auction
There are several selling methods used in both Traditional (in person) auctions and Online auctions (those taking place via the Internet). These include:
English (open price ascending) Auction
Arguably the best known type of auction, at least in the Western world. In the English auction, bidding starts low (or at the lowest price the auctioneer will accept for the goods on offer) and progresses in increments as people bid (signal to the auctioneer that they are willing to pay a higher amount for the lot on offer). This auction is portrayed in popular culture as being one in which a hapless individual can make a binding purchase by scratching his nose, or by waving her hand about carelessly. In reality, this is not likely to happen.
Dutch (open price descending) Auction
The now-ubquitous online platform eBay is the best-known online platform for auctions, but there are now many others, including country-specific auctions. The Chinese site Taobao does auctions as well as other types of sale.
Industries that use auctions as a selling method
One of the great draws of auctions, in addition to the possibility of a below-market purchase price, is that they are entertaining, whether or not one actually wins a purchase. Auctions can form one component or highlight of a larger event, or they can be the event itself. The style and nature of an auction can vary greatly depending on the types of commodities being sold. Autions range from elegant formal affairs to raucous events where the proceedings seem chaotic but nevertheless have set rules, and make perfect sense to the participants.
Industries typically offering goods for sale at auction include:
Charity auctions are popular fundraisers. They range from casual to ultra formal occasions; some are important events on the social calendar. A wide variety of goods can be offered for sale, from baked goods to donated antiques to dates with eligible bachelors.
Charity auctions work well on several levels: donors get personal satisfaction and perhaps also economic advantage such as tax breaks, buyers have the fun of participating plus the satisfaction of aiding a charity (the knowledge that it is for charity is also a contributing factor in the price realised for the sale) and a successful auction is a 'feather in the cap' of the organisers.
Debt and foreclosure
Fine Art, antiques and collectables
Because these items often form part of important collections, their value becomes extremely significant in matter of personal property: wills and estates, debt and foreclosure, and family division. The price realised at auction is a major determinant of value, specifically the fair market value.