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AuctionsAuctions have become an effective tool to implement public policy. Their use now ranges from the allocation of radio spectrum needed for mobile communication, to spot markets trading electricity and pollution permits and it is widely used in government procurement.
An auction can be defined by one of its central properties: as a market clearing mechanism that equates demand and supply. Auctions are used in the sale of goods for which there is no established market. Auctions were the cause for the mass privatization in Eastern Europe. Rare or unique objects are typically sold in auctions. Christie?s and Sotheby's famed enough. The reason why these rare and unique objects are auctioned is because of the small market it has otherwise.
Auctions are used to sell hundreds of goods, such as bales of wool or used cars, in a few hours. One can imagine how many hours it would take to sell 100 used cars through negotiated sales. The reader should then ask the question why then car dealers do not switch to auctions as a sales mechanism. Although a complete answer to this question is beyond the scope of this article, we could expect that under certain conditions a negotiated sale or even a fixed price might result in higher expected revenue for the seller.
Auctions can be classified according to several distinct criteria. For instance, we have open auctions and sealed-bid auctions. Open auctions are publicly observable while closed ones are not. There are also the ascending and descending price auctions. Both types of auctions are public. But the descending auction starts at a low price and bids have to be increasing, whereas in the bidding starts at a high price that continuously declines until one of the bidders stops the process by acquiring the object in the ascending. There are auctions for single objects and auctions for multiple objects.
Auctions could also be reverse auctions. Auctions need not always mean that a seller brings an item for sale and buyers bid for it. In a reverse auction, a person who wants a particular item (a seller, traditionally) could place his demand for that particular item at a manufacturer (a buyer, traditionally). Here the roles of the buyer and seller are reversed. Reverse auctions, on the contrary to traditional auctioning, drives down the prices of products. Reverse auctions are mostly used in business to business transactions.
Owing to the advancements in the technology, Auctions have got a new medium as well. Today, one could auction their goods on the internet as well. This has changed the time and space of auctioning. Also, with the help of sites like eBay, auctioning has reached more households than ever. Every individual could be an auctioneer today.
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