English auction

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An English auction is an open-outcry ascending dynamic auction. It proceeds as follows.

  • The auctioneer opens the auction by announcing a suggested opening bid, a starting price or reserve for the item on sale.
  • Then, the auctioneer accepts increasingly higher bids from the floor, consisting of buyers with an interest in the item. The auctioneer usually determines the minimum increment of bids, often raising it when bidding goes high.
  • The highest bidder at any given moment is considered to have the standing bid, which can only be displaced by a higher bid from a competing buyer.
  • If no competing bidder challenges the standing bid within a given time frame, the standing bid becomes the winner, and the item is sold to the highest bidder at a price equal to their bid.
  • If no bidder accepts the starting price, the auctioneer either begins to lower the starting price in increments, bidders are allowed to bid prices lower than the starting price, or the item is not sold at all, according to the wishes of the seller or protocols of the auction house

English auction is different from other auction systems in the most essential feature: the public bidding process can transmit information to bidders in real-time because it can potentially realize the sharing of private information. By introducing the common value factor, the English auction has a revenue advantage: each bidder's private information about the common value is valuable information to the other bidders, and this information is disclosed during the public bidding process.[1]

Unlike sealed-bid auctions (such as first-price sealed-bid auction or Vickrey auction), an English auction is "open" or fully transparent, as the identity of all bidders is disclosed to each other during the auction. 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 if the item is being sold to competing buyers, increasing it, if it is a reverse auction).

When the auction involves a single item for sale and each participant has as an independent private value for the item auctioned, the expected payment and expected revenues of an English auction is theoretically equivalent to that of the Vickrey auction, and both mechanisms have weakly dominant strategies.[2] 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.[3]


There are many variations on this auction system. Sometimes, the reserve price is not revealed. Also, bids may be made with signals instead of being called out. Such signals can include tugging an ear or raising a bidding paddle. 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. In France, when the last bid has been made in an auction for an art object, a member of the state can say "Préemption de l'état" ("Pre-emption of the state") and buy the object for the highest bid.[4] Some housing cooperatives similarly allow members of the cooperative to pre-empt any buyer of a house constructed by the cooperative.[5] English auctions may end at a specified time, or when no new bids have been made after a period of time.

Scottish auction[edit]

In a Scottish auction (or also time-interval auction), all bidding should be completed within a certain time interval.[6] This ruling provides the bidders an appropriate amount of time for considerations. Speed is not important in this type of auctions.

Candle auction[edit]

A candle auction is a variation in which the end of the auction is signaled by the expiration of a candle flame. This was intended to ensure that no one could know exactly when the auction would end and make a last-second bid.

Japanese auction[edit]

A Japanese auction is a variant in which the current price changes continuously according to the auctioneer's clock, rather than by bidders' outcries. Bidders can only decide if and when to exit the arena. At first glance, this seems equivalent to English auction: apparently, in an English auction, it is a dominant strategy for each buyer whose price is above the displayed price, to always bid the minimal allowed increment (e.g. one cent) above the displayed price, so the price should increase continuously. However, in real-life English auctions, jump bidding is often observed: buyers increase the displayed price much more than the minimal allowed increment. Obviously, jump-bidding is not possible in a Japanese auction. This may be seen as either an advantage or a disadvantage of the English auction format.

Selling more than one item[edit]

The English auction has variants for selling multiple identical items[7] or multiple different items.[8][9]

Vickrey auction[edit]

Vickrey Auction .jpg

Vickrey auction is also known as Second-price sealed-bid auction. None of the bidders know what the other is offering, the bidder with the highest price wins, but only pays the next highest bid.[10] The most striking feature of these auctions is that each bidder's winning strategy is to bid according to his true willingness to pay. This auction mechanism is obviously incentive-compatibility because the auction goods will eventually go to the bidder with the highest willingness to pay, and it is also an allocation mechanism with Pareto efficiency[11]

Single Item Auction Analysis[edit]

Common Value[edit]

In most cases, there is an objective actual value (such as the amount of oil in the field) for the item at auction, which is the same to all bidders, but no one knows exactly this common value at the time of the auction and can only estimate it based on private information, such as information from geological surveys. At this point, the bidder is likely to change the original estimate after learning about other people's estimates。 Each bidder must realize that he or she can only win the item if he or she has the highest signal (in a Symmetric equilibrium). Therefore, bidders need to be rational and must consider both success and failure simultaneously.[12]

Seller's strategy[edit]

If the seller has any private source of information related to the true value of the bid (which is linked to the bidder's private signals), his best policy is to promise in advance to disclose it honestly. The general principle that the expected income can be increased by linking the price paid by a winner to information associated with the winner's information is known as the Linkage principle[13]

Optimal Auction analysis[edit]

In the optimal auction analysis, if the bidders have an independent private valuation, then the optimal reserved valuation is independent of the number of bidders and higher than the seller's own valuation. However, if the valuation is related, the more bidders, the lower the retention valuation will be. Levin and Smith demonstrate that with the increase in the number of bidders, the optimal retention valuation will converge to the seller's own valuation[14]

Maximum expected revenue[edit]

In order to obtain the maximum expected revenue, the seller bids on the item to the bidder with the highest marginal revenue rather than the highest valuation and sets the optimal reserved valuation. According to demand theory, the buyer with the same valuation has a greater marginal revenue in a lower demand curve (the demand curve shifts to the left).[15]

Information asymmetry[edit]

The impact of asymmetric information among bidders will be much more significant.If a bidder has the slim advantage of a private estimate of the item, his bid would be much bolder. In the English c auction, this advantage has a huge indirect effect: the bidder's opponent bids more conservatively, and the superior bidder can bid more aggressively. The end result is that the superior bidder wins at a very low price and this effect is magnified by the existence of bidding costs or entry costs so that the inferior bidder cannot participate in the auction at all.[16]

Collusion behavior[edit]

The foregoing assumes that the game between bidders is fully competitive. It is entirely possible for bidders or bidders to collude to reach an implicit or explicit collusion agreement in the auction. In English Auction, the cartel only has to stop bidding against each other. All bidders must agree that the named bidder will bid as low as possible, while all other bidders will submit zero, but all other bidders will have a strong incentive to break the agreement[17]

Multi-Item Auction Analysis[edit]

The multi-item auction can be divided into the same multi-item auction and different multi-item auction。[18]

Homogeneous multi-item auction[edit]

Homogeneous multi-item auction: It means that when all the items auctioned are the same, the same price auction or discriminatory price auction can be adopted to auction all the items at one time; Sequential auctions can also be used, where only one or a few items are sold at a time until the auction is over. In the same price auction, the auction as N items at the same time the same price auction refers to the (N + 1) price auction. In this kind of auction, the best bidding strategy of the bidder is to bid honestly, that is, the bid is equal to his own estimate. In a discriminative auction, the rules for determining the ownership of N items are the same as in a Homogeneous price auction, but each bidder pays a price equal to his or her own true offer. Because each bidder may pay a different price, there is price discrimination, so this type of multi-item auction is called a Price discrimination auction.[19],

Heterogeneous multi-item auction[edit]

In Heterogeneous multi-item auctions, the valuation of several different items involves two basic functions: substitution and complementarity. When the sum of the joint estimates of A and B is less than the sum of the separate estimates of A and B, we say that A and B are interchangeable. In the case of PA+PB, A and B are substitutes for each other. For example, when A and B are cameras of two different brands, the utility of obtaining them at the same time is generally not much greater than that of obtaining one camera for consumers, because cameras of different brands can be substituted with each other. On the contrary, A and B are said to be complementary when the sum of the joint estimates of A and B is greater than the sum of the separate estimates of A and B(PAB>PA+PB). For example, when A and B are cameras and supporting batteries respectively, each individual product cannot work normally. It is only useful to consumers when they get these two items at the same time.[20]


  1. ^ Milgrom, Paul (2004). Uniform Price Auctions. In Putting Auction Theory to Work. Churchill Lectures in Economics. p. 255-295. doi:10.1017/CBO9780511813825. ISBN 9780511813825. Retrieved 25 April 2021.
  2. ^ Preston McAfee and John McMillan. Auctions and Bidding. Journal of Economic Literature, 699–738, 1987.
  3. ^ Tuomas Sandholm. Limitations of the Vickrey Auction in Computational Multiagent Systems. Proceedings of the Second International Conference on Multi-Agent Systems, 299–306, 1996.
  4. ^ "Définition de Préemption". Retrieved 11 October 2010.
  5. ^ "OBOS is a housing cooperative in Oslo which allows its members to pre-empt whenever one of their houses are sold". Obos.no. Retrieved 2013-11-28.
  6. ^ Hultmark, Christina; Ramberg, Christina; Kuner, Christopher (2002). Internet Marketplaces: The Law of Auctions and Exchanges Online. Oxford University Press. ISBN 978-0-19-925429-3. Retrieved 29 August 2020.
  7. ^ Ausubel, Lawrence M (2004). "An Efficient Ascending-Bid Auction for Multiple Objects". American Economic Review. 94 (5): 1452–1475. CiteSeerX doi:10.1257/0002828043052330.
  8. ^ Gul, Faruk; Stacchetti, Ennio (2000). "The English Auction with Differentiated Commodities". Journal of Economic Theory. 92: 66–95. doi:10.1006/jeth.1999.2580.
  9. ^ Ben-Zwi, Oren; Lavi, Ron; Newman, Ilan (2013). "Ascending auctions and Walrasian equilibrium". arXiv:1301.1153 [cs.GT].
  10. ^ Mierendorff, Konrad (2013). "The Dynamic Vickrey Auction". Games and Economic Behavior. 82: 192-204. doi:10.1016/j.geb.2013.07.004. Retrieved 25 April 2021.
  11. ^ Rothkopf, Michael H; Thomas J, Teisberg; Edward P., Kahn (1990). ""Why Are Vickrey Auctions Rare?"". Journal of Political Economy. 98 (1): 94–109. doi:10.1086/261670. JSTOR 2937643. S2CID 154179079.
  12. ^ Rothkopf, Michael H; Thomas J, Teisberg; Edward P., Kahn (1990). ""Why Are Vickrey Auctions Rare?"". Journal of Political Economy. 98 (1): 94–109. doi:10.1086/261670. JSTOR 2937643. S2CID 154179079.
  13. ^ Berz, Gregor (2015). Enter your username and password - The University of Queensland, Australia. p. 38. doi:10.1057/9781137475428. ISBN 978-1-349-69293-4. Retrieved 25 April 2021.
  14. ^ Levin, D (1996). "Optimal Reservation Prices in Auctions". Economic Journal. 106: 73. doi:10.2307/2235520. JSTOR 2235520.
  15. ^ McAfee, R (1987). "Auctions and Biding". Journal of Economic Literature: 25.
  16. ^ Krishna, Vijay (2009). Auction theory. Elsevier Academic Press. ISBN 9780123745071.
  17. ^ Seres, Gyula (2017). "Auction cartels and the absence of efficient communication". International Journal of Industrial Organization. 52: 282–306. doi:10.1016/j.ijindorg.2017.03.002.
  18. ^ Schweitzer, Sascha Michael (2012). Large-scale Multi-item Auctions : Evidence from Multimedia-supported Experiments (1st ed.). KIT Scientific Publishing. p. 6. ISBN 9783866449046. Retrieved 25 April 2021.
  19. ^ Schweitzer, Sascha Michael (2012). Large-scale Multi-item Auctions : Evidence from Multimedia-supported Experiments (1st ed.). KIT Scientific Publishing. p. 6. ISBN 9783866449046. Retrieved 25 April 2021.
  20. ^ Gerard, Yang (2016). "An Ascending Multi-Item Auction with Financially Constrained Bidders" (PDF). Journal of Mechanism and Institution. 1: 107-147. doi:10.22574/jmid.2016.12.004.

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