How many auctions are there

A month from finding out about properties and putting a deposit down is a fairly short time. This includes arranging a survey of the property, having your lawyer check the legal pack and getting your finances in order. Once you successfully bid, you buy. A winning bid is a contract to buy the property. If you do back out, then the seller takes your deposit with them. And while some of these people might become friends, others will become enemies.

This could lead to them targeting the same properties as you, pushing the prices up with bids or trying to put you off during the event. Other developers will spot a weakness and be on you right away. One might think so many canonical auction forms unnecessary, that there is always a best choice that will yield the most surplus to the seller. In fact, under some strict assumptions, the revenue equivalence theorem also due to Vickrey states that all four auction types will result in an identical level of revenue to the seller.

The first assumption of the theorem is that the asset being auctioned has an independent, private value to all bidders.

This assumption tends to hold when the item is for personal consumption, without thought toward resale, as might be the case for furniture, art, or wine. In this case, the value of the item is considered to be personal and independent of the value others might place on it independent, private values. The assumption does not hold when bidders perceive a value of resale, either of the item itself or of a by-product of the item. Buying land for the rights to the oil that lies beneath it would be a good example.

In this case, the value is common; that is, individual bids are predicated not only on personal valuation, but also on the valuation of prospective buyers.

Each bidder tries to estimate the value of an object using the same known measurements common values , but their conclusions may vary widely. Absent special information about the item being purchased, the winner is the person with the largest positive error in his valuation, and, unless he is lucky, he will wind up losing money.

The second assumption of the revenue equivalence theorem is that all bidders are risk-neutral. The strict definition of risk neutrality is: given the choice between a guaranteed return r and a gamble with expected return also equal to r, the bidder is completely indifferent. The style of auction a seller chooses depends on his judgment about which of these assumptions holds. If values are common rather than independent, the English auction yields higher seller revenue than the second-price, sealed-bid auction, which in turn yields higher revenues than the Dutch and first-price, sealed-bid auctions which are tied.

The rankings illustrate the strategic advantages of increased information. Because the English auction reveals all bids to all bidders, it permits dynamic updating of personal valuation.

If I see that others believe the real estate is worth more, I too may decide it is worth more. Similar reasoning applies to Dutch descending auctions. While the information is not updated in a second-price sealed-bid format, the winner pays the bid of the next-highest bidder, and so bidders raise bids, secure that they will not be disadvantaged if rival bids are lower. In fact, in both the first-price, sealed-bid auction and the Dutch auction, no information is revealed and the bidder pays the value of his bid.

Therefore, in terms of revenue maximization, it does not matter which of these auctions a seller chooses; nor does it matter whether the bidders have private or common values. What about the role of risk aversion? In first-price, sealed-bid and Dutch auctions, risk aversion causes bidders to bid slightly higher than they might otherwise. Since they have only one chance to bid, fear of losing the item induces overbidding. In the English and Vickrey auctions, however, bidders are induced to bid their true valuation, regardless of risk attitudes.

Once a seller has decided on which of the four basic auction forms to use, he can use many variations within the auction to further manipulate the outcome to maximize revenue. These mechanisms can have profound, and often counterintuitive, effects on bidding behavior—and therefore on outcomes. Among the available mechanisms are reserve prices, entry fees, invited bidders only, closing rules, lot sizes, proxy bidding, bidding increment rules, and postwin payment rules.

The U. Federal Communications Commission FCC auctions of wireless bandwidth provide a useful example of both the successes and the failures of auction design.

The auction to allocate Personal Communications Service PCS spectrum had four primary goals: 1 to attain efficient allocation of spectrum, 2 to encourage rapid deployment and network build out, 3 to attain diversity of ownership, and 4 to raise revenue. Goals 1, 2, and 4 are met by any well-designed auction, as the winner is the one who values the item most. Social Media. View More. Starting Your Career.

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