Unique bid auction

Unique bid auctions are a mix between an auction and a lottery. The participants bid for a particular item by submitting blind or sealed (ie secret) bids: the winner is the bidder who places the highest or, in some variants the lowest, unique bid.

A "unique" bid, in this context, means one in which the amount offered is the only one of that value. To facilitate this, such auctions will accept bids that are specific to the pence.

In unique bid auctions, it is normal for bidders to be charged for placing their bid. The seller's payment includes the total of these charges (less costs), as well as the actual amount bid by the winning participant. For the buyer, the attraction is that they may acquire an item at well below its true value.

This type of auction may be regarded as having elements of a normal auction (placing bids) and of a lottery (paying a fee for each bid). They are legally classified as skill-based prize competitions.

However, based on a judgement by Ofcom (Office of Communications) the UK broadcasting watchdog, (ref: Ofcom Broadcast Bulletin Issue number 68 - Sep 4, 2006 [1]) they may also be considered 'genuine auctions' as people bid to secure the purchase of a product, therefore the goods are for sale and not prizes.

Variants

The two most common types are highest unique bid and lowest unique bid auctions.

In a highest unique bid auction, a limit is set for the maximum price that can be bid. When the auction closes, the bid with the highest price that no one else has bid wins the auction.

In a lowest unique bid auction, the minimum price you can bid is typically set to $0.01. When the auction closes, the bid with the lowest price that no one else has bid wins the auction.

Examples of unique bid auctions

The following is an example of 5 bid amounts in a lowest unique bid auction:

File:Bid graphic cents.gif

The bidder who placed the bid of 3 cents would be the lowest unique bid and therefore the winner.

A highest unique bid auction would work in the same way, except the bidder with highest unmatched bid at the close of auction would win, therefore in the above example the bid of 5 cents would win.

In a typical real example of a unique bid auction, a car worth $20,000 might be offered to bidders. If the auctioneer charged $10 a bid then they would need to get over 2,000 bids to cover the cost of the car. (For simplicity, this example does not take into consideration any costs for running the auction or processing payments). If at close of auction the Highest or the Lowest (depending on the type of auction) unique bid was $20, the successful bidder would be able to purchase the car for 0.1% of its normal price.

However, in the case of some unique bid auctions, initial and ongoing bid status messages are provided to the bidders. These messages inform the bidder if their bid is unique or not, with some information of relative positioning. This may provide enough information to enable some bidders to actively influence the outcome of an auction.

External Links

Lowest Unique Bid

• Bloafer - Online Reverse Auctions for the UK.
• Silverback Wireless- Online Reverse Auctions for the North America.

Variation in participation fee

Though unique bid auctions all share the same concept, there is still variation which may affect the crowd it is seeking to attract. These variations can be placed into two main categories:

In the first variation, users are required to pay a fee after an agreed period of time, with a set amount of bids that the user can make over that time period. For users who are new to the unique bidding scene, this method can often save money.

In the second variation, users must pay a pre-determined fee when they submit their bids. Time-based fee's in this variation are rare. For users who are learned in the unique bidding scene, this method is sometimes much more preferable.

References

Academic papers

• Rapoport, A., Otsubo, H., Kim, B., & Stein, W. E. (2007). "Unique Bid Auctions: Equilibrium Solutions and Experimental Evidence", working paper.

See also

• Bidding fee scheme
• Auction sniping