English auction
An English auction is the type of auction, whose most typical form[clarification needed] is the "open outcry" auction. The auctioneer opens the auction by announcing a Suggested Opening Bid, a starting price or reserve for the item on sale and then accepts increasingly higher bids from the floor consisting of buyers with a possible interest in the item. Unlike sealed bid auctions, "open outcry" auctions are "open" or fully transparent as the identity of all bidders is disclosed to each other during the auction. 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 his or her bid. 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.[1] 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]
Variations
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.[3] Some housing cooperatives similarly allow members of the cooperative to pre-empt any buyer of a house constructed by the cooperative.[4] English auctions may end at a specified time, or when no new bids have been made after a period of time.
Candle auction
A candle auction, or auction by the candle, is a variation on the typical English auction that became popular in the 17th and 18th centuries.[5] In a candle auction, the end of the auction is signaled by the expiration of a candle flame, which was intended to ensure that no one could know exactly when the auction would end and make a last-second bid. Sometimes, other unpredictable processes, such as a footrace, were used in place of the expiration of a candle.
Auction by the candle was known in England by 1641, when it is mentioned in the records of the House of Lords.[6] The practice rapidly became popular, and in 1652, John Milton wrote, "The Council thinks it meet to propose the way of selling by inch of candle, as being the most probable means to procure the true value of the goods." Samuel Pepys's diary of his London life records two occasions when the Admiralty (his employer) sold surplus ships "by an inch of candle" (November 1660 and September 1662). Pepys also relates a hint from a highly successful bidder, who had observed that, just before expiring, a candle-wick always flares up slightly: on seeing this, he would shout his final - and winning - bid.
Although the candle auction went out of favor in the 18th century,[6] a few candle auctions are still held today as a form of tradition. In Chedzoy, Somerset, a plot of church land is sold by candle auction once every 21 years.[5] In Tatworth, a 6-acre (24,000 m2) plot is auctioned by candle once per year.[5][6] In Leigh, Dorset, two pieces of land, Alton Mead and Bere (or Beer) Mead, are auctioned annually. And in Bourne, Lincolnshire, the 1-acre (4,000 m2) White Bread Meadow is auctioned by means of a race between two boys from the town.[5][7]
A modern variant of the candle auction is used in some online auction systems to prevent auction sniping. In these auctions, a computer randomly selects the time when the auction will end to discourage snipers from attempting to enter bids at the last second. Indeed, Füllbrunn and Sadrieh show theoretically and experimentally that bidders submit serious bids from the start in candle auctions.[8]
See also
Notes and references
- ^1 OBOS, a housing cooperative in Oslo that practices preemption.
References
- ^ Preston McAfee and John McMillan. Auctions and Bidding. Journal of Economic Literature, 699-738, 1987.
- ^ Tuomas Sandholm. Limitations of the Vickrey Auction in Computational Multiagent Systems. Proceedings of the Second International Conference on Multi--Agent Systems, 299-306, 1996.
- ^ "Définition de Préemption". Retrieved 11 October 2010.
- ^ "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.
- ^ a b c d R.W. Patten. "Tatworth Candle Auction." Folklore 81, No. 2 (Summer 1970), 132-135
- ^ a b c William S. Walsh A Handy Book Of Curious Information Comprising Strange Happenings in the Life of Men and Animals, Odd Statistics, Extraordinary Phenomena and Out of the Way Facts Concerning the Wonderlands of the Earth. Philadelphia: J.B. Lippincott Co., 1913. 63-64.
- ^ Jeremy Hobson. Curious County Customs. Newton Abbot: David & Charles, 2007. 76-77.
- ^ Füllbrunn, Sascha; Sadrieh, Abdolkarim (2012), "Sudden Termination Auctions - An Experimental Study", Journal of Economics & Management Strategy, vol. 21, no. 2, pp. 519–540
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