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Auction - types of auction and their characteristics

Types of Auction and the characteristics


v  Ascending-bid auction (English Auction)
•       Real time interactive auction
•       Bidders present physically or electronically
•       Seller gradually increases price- bidders drop out until one bidder remain to win the auction.
v  Descending-bid auction (Dutch Auction)
•       Real time interactive auction
•       Bidders present physically or electronically
•       Seller gradually decreases price from high value.
•       The first bidder, who accepts the current price, wins the bid.
•       These auctions are called Dutch auctions because flowers have long been sold in the Netherlands using this procedure
v  First price sealed bid
•       Offline auction
•       Bidders submit sealed bid to the seller
•       Seller opens all the bids together.
•       The highest bidder wins the bid and the object.
v  Second price sealed bid (Vickrey Auction)
•       Offline auction
•       Bidders submit sealed bid to the seller
•       Seller opens all the bid together.
•       The highest bidder wins the bid and the object and pays the value of second highest bidder.
v  Multi-Unit Auction – Dutch
•       Starts with low price and increase the price till supplier willing to provide one unit of the goods or service.
•       Price raised slowly until suppliers have committed to all unit desired by buyer
•       Each unit is supplied with different price.
v  Multi-unit Auction – English Auction
•       Starts with high price and bidders announce the unit they are willing to supply.
•       If the quantity that supplier willing to supply is more than required by buyer, the buyer reduces the price until the quantity matches the buyer’s requirement.
•       All suppliers get to supply at this price.
•       This auction is referred as Uniform-price auction

Factors influence performance of a bid
•       Supplier’s cost structure – interdependent and correlated.
•       In similar market and similar processes, the interdependence and correlation is higher
•       If the supplier is symmetric with the costs that are interdependent and correlated, English auction brings lowest price for the buying firm.
•       If the structure is asymmetric, then second-price auction may do better than English auction
Best practices
•       Buyer must reveal all the information of the supply Chain task
•       By not revealing all the information, suppliers shade the bids to guard against Winner’s curse
•       Clear idea of buyer’s own value, supplier’s value
•       Divide the bargain surplus in proportion to contribution of each party.


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