What is an Auction?
The most common definition of an auction is that it is a type of sale in which the goods do not carry any price but get set through the mechanism of competitive bidding. Auctions are a good medium to sell any fixed asset, old or new, to the buyer who bids highest within the limited time frame. An auction recognizes the need, creates demand, channelizes it, induces like minded and people in need to participate in the public bidding. At the end, the process of auction results in selling the item to the highest bidder generally at the highest market value of the day. An auction is said to be complete when the buyer’s bid is accepted by the vendor and that buyer pays the bid amount to the seller and picks up the item.
In the process of auction the goods are sold to the person whose bid is the highest. As there is a wide range of participation and is open to public, a wide variety of bids can be registered and sometimes as a surprise very high prices can be noted. Rather than the seller, the bidder will decide the price. All over the world, there are a number of auctions being conducted.
History of auction
“Auction” is a derivative of Latin word “augeo” implying “I raise or increase or augment”. From the recorded history, auctions have been in vogue since 500B.C. As per the historian Herodotus, auctions were held annually of women for marriage. It was very common to auction memorabilia of wars following victory in Roman Empire. People captured as slaves were auctioned as war spoils. In early 1700s & 1800s “auction by candle” was popularly used to sell general house hold proceeds. Candle lighting is used to decide the duration of the auction and the bid at the time of candle gets extinguished is treated as auction won. The auction houses came into existence in Europe around 1700’s and are still active to date. Some of the popular and old auction houses include Swedish “Stockholm Auction House established in 1674, Sotheby’s auction house set up in 1744 and Christie’s auction house set up in 1766 which boasts the biggest auction house to date.
What are the different types of auctions?
Auctions can be categorized into forward auction where there is a competition between the interested bidders for a seller’s item or groups of items. In the reverse auction, sellers compete with each other for a buyers need. The following provides some popular auction categories.
- In a common English auction, the item which is shown to the public is placed a minimum price and depending on the item, public raise the price and someone finally wins the auction, pay for the item and own it. An auctioneer oversees the bidding and also decides who will be the final winner. In several cases, the seller decides a minimum price for the object and ensures that the object is not sold below that price. Sotheby’s auction house follows this trend.
- There is a different type of auction known as Dutch auction, where the auctioneer will start with a price and then decrease the price. People who participate in the bidding listen to the bid and opt for a suitable price. In Dutch auctions, same item is sold in multiple units to several people.
- There are cases of auctions where the bidders submit bids which are sealed and all of them are disclosed at the same time. Person with the highest bid will become the winner.
- In another procedure, silent auction is held. People move through the items, write their bids on papers which are seen by all. The person who bids highest will become the winner.
- An another type of auction, recently being popularized over the internet, unique bid auction where the winner is generally the one with the lowest unique bid, although in most of the cases bidders pay a fee to make a bid, or pay a subscription fee in order to be able to participate. These types of auctions are also held for the branding of a new product.
- In some cases, bidders can participate remotely making the auction as remote auction. Modern technologies and the internet have changed the method of auctioneering into an open and transparent bidding process with no bar on location.
By virtue of its characteristic an auction is a legally binding agreement between the bidder and the seller. While participating in an auction the bidder generally signs an agreement agreeing to pay the bid amount in case he wins within a stipulated time. In high end and high profile biddings the participants are required to deposit surety money besides proving their capacity to pay the bid amount. In the event the bidder fails to honour the bid, the bidder forfeits the surety amount.