Auctions

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AUCTIONS

AUCTIONS are a method of allocating goods and services based on competitive price offerings from sellers and buyers. While auctions can take various forms, the most common form is generally called an English auction, in which the potential buyers compete for the item or set of items offered for sale by raising their bids until a single buyer remains. This process is generally overseen by an auctioneer, who recognizes the various bids as they are made and determines when the bidding is ended. In a Dutch auction, derived from its use in the Netherlands for the wholesale sale of flowers and other agricultural goods, the seller begins with a high price and then lowers it in regular increments. The first buyer to bid gets the object. Due to the split second differences in bids, bidding in these auctions is often done electronically.

There are numerous other variations. Some auctions entail simultaneous bidding from multiple buyers and sellers. This is the method used on most major international mercantile exchanges, such as the Chicago Board of Exchange, where commodity futures are bought and sold. It is commonly referred to as a Japanese auction, however, based on its use in traditional Japanese fish auctions. Other auctions, including most oil and mineral rights auctions, rely on written bids, which must be submitted by a specified time and date when they are opened. This method is also used in what are commonly called "silent auctions." Years ago, before it became common for people to wear watches, there were "candle auctions" in which the bidding ended when the candle went out.

Perhaps the oldest recorded auction is the bride auction described by Herodotus, existing as early as 500 b.c., in which once a year females of marriageable age were sold to the highest bidding suitors. Roman soldiers are recorded as auctioning off captured war booty, sub hasta or "under the spear," to merchants who traveled with the army. The earliest reference to the term "auction" in the Oxford English Dictionary is dated 1595. Auctions appear to have become significantly more common in the seventeenth century as part of the growth in international trade, particularly as a means for selling imported goods. The world famous auctioneer houses of Sotheby's and Christie's were founded in England in 1744 and 1766, respectively. While the names Sotheby's and Christie's are still closely associated with auctions, especially when it comes to the sale of very expensive antiques and art objects, in gross economic terms agricultural and financial auctions entail much larger sums of money. In the 1990s, meanwhile, the Internet became the locus for the emergence of a large number of new auctions, such as those sponsored by eBay and Yahoo.

Despite their common use, auctions have historically had a dubious reputation, in part due to the negative impact that many seventeenth-, eighteenth-, and nineteenth-century auction sales had on established businesses. This was especially true of eighteenth-century seaport auctions in which British goods were often "dumped" in American ports. Auctions were also closely associated with the infamous slave trade. This negative attitude toward auctions was not lessened when they were commonly used, especially on the frontier, in bankruptcy and delinquency sales. Auctions continue to be used in most liquidation sales. Both the positive and negative response generated by auctions relates to their primary use in allocating and pricing goods that have an ambiguous value, be it a Baby lonian bride, Roman war booty, foreign goods, a repossessed farm, a newly discovered artistic masterpiece, an antique necklace, or a highly perishable agricultural commodity. While the auction process resolves what differences might exist, at least for the moment, a good number of people are likely to feel that the auction price was either too high or too low. This ambiguity also offers opportunities for more knowledgeable participants to exploit the less knowledgeable. Since different types of auctions vary in numerous ways, the rules governing them intended to ensure fairness also vary. Many auctions, including most financial and commodity auctions, are restricted to members only. Some auctions allow for reserve prices while others do not. Buyer "rings" are prohibited in some auctions and not in others.

During the last quarter of the twentieth century, as the world economy became more market oriented, auctions grew in importance. Seen as embodying free market principles in their purest form, Western capitalist governments, particularly the United States, have supported their use in allocating resources, including previously owned government resources. This greater use of auctions has also been fostered by the growth of e-commerce and the Internet, which enable otherwise separated individuals to interact directly with each other electronically. Globalization and market growth is likely to further enhance this prominence in the twenty-first century.