ENGLISH
The price climbs
The auctioneer starts low and asks for higher prices. Everyone sees the bids, and the highest bidder pays what they bid. It is the usual format in auction houses.
Compare formatsHow you sell something changes what people bid.
An auction can climb, fall or happen in sealed envelopes. Economists have shown that the rules, what the object is worth to each bidder and how much they know all shape the final price.
- Open or sealed
- Rising or falling
- Your bid or the next one
- Three choices behind every auction
THE SHORT ANSWER
Three common
ways to sell.
Most auctions mix a few simple choices:
open or closed bids, and which price the winner pays.
DUTCH
The price falls
The price starts high and is lowered until someone accepts. Bids are open, but the Nobel committee notes it reveals no new information while it runs.
Why it matters
SEALED BID
One envelope each
Bidders cannot see each other's offers. In a first-price auction the winner pays their own bid; in a second-price auction they pay the second-highest.
Bidding wiselyGeneral information only, not financial advice. For advice on your own situation, speak to a regulated financial adviser or a free money-advice service.
WHAT THE THEORY SUGGESTS
Before you
raise your hand.
These points come from the economics of auctions, not from any one saleroom's rules. Always read the terms of the auction you are taking part in.
Know what it is worth to you
In auctions where values are private, the Nobel background says you should not bid more than the object is worth to you.
Ask what others might know
When part of the value is shared, such as resale value, better-informed bidders can leave you exposed to the winner's curse.
Use independent information
The theory says sellers who share expert valuations before bidding can expect higher prices, because bidders are less cautious.
Check which price the winner pays
In a first-price auction you pay your own bid; in a second-price auction you pay the next highest one.
TWO NUMBERS WORTH KNOWING
Big sales,
careful rules.
One UK auction of mobile airwaves,
and the first sale that used a new multi-round format.
£1,379.4m
Raised by the 2021 spectrum auction
Ofcom's 2021 auction of 700 MHz and 3.6-3.8 GHz airwaves raised £1,379,400,000 in total, including £23 million from a second-price assignment stage. All of it was paid to HM Treasury.
UK AIRWAVES · OFCOM
$617m
US licences sold in July 1994
When US regulators first used a Simultaneous Multiple Round Auction in July 1994, they sold 10 licences in 47 bidding rounds for a total of 617 million dollars.
FIRST MULTI-ROUND SALE · NOBEL
The Nobel committee says this format has generated more than 200 billion dollars from spectrum sales worldwide, and that the UK is among the countries that adopted it.
A QUICK FORMAT CHECK
How much do bidders
learn as it runs?
Pick an auction format. The bar shows how much the bidding itself reveals about what other bidders think the object is worth.
Based on the Royal Swedish Academy of Sciences' popular science background to the 2020 Prize in Economic Sciences, and Ofcom's 2021 auction results.
THE WINNER'S CURSE
Winning can
mean overpaying.
Many things sold at auction, such as property, minerals or radio frequencies, have a common value: their worth is in the end much the same for every bidder, but nobody knows it in advance. The most optimistic bidder tends to win, and may have overestimated it.
Research honoured by the 2020 Prize in Economic Sciences showed that rational bidders shade their bids below their best estimate to avoid this, that greater uncertainty makes them more cautious, and that bidders with worse information bid lower or stay out.
In conversation
Questions people ask
What is the difference between an English and a Dutch auction?
In an English auction the price starts low and rises as people bid openly. In a Dutch auction it starts high and is lowered until someone is willing to buy.
What is a second-price auction?
A sealed-bid auction where the highest bidder wins but pays the second-highest bid. Ofcom used a second-price rule in the assignment stage of its 2021 spectrum auction.
What is the winner's curse?
When an object has a value that is the same for everyone but uncertain, the bidder who wins is often the one who overestimated it most, so winning can mean making a loss.
Do different auction formats raise different amounts?
With rational, risk-neutral bidders who each have purely private values, the English and Dutch formats give the same expected revenue. Once values are partly shared, formats that reveal more information tend to raise more.
How old are auctions?
The Nobel background notes that lenders in Ancient Rome used auctions to sell assets confiscated from borrowers, and that the world's oldest auction house was founded in Stockholm in 1674.
Sources
Each figure on this page comes from the sources below.