AUCTION
Abdullah Yassıörenli
Ahmet Yazar
M. Turgay Erol
Serhat Sayan
Serkan Nural
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General Overview
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Definition of Auction
Advantages and Disadvantages
Auction Terminology
Valuation
Auction Types
Selling and Buying at Auction
Auction Strategies in Negotiation Process
Haphazard Systems
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Auction
• An auction is a method of allocating
scarce goods,
– a method that is based upon competition:
• A seller wishes to obtain as much money as
possible,
• A buyer wants to pay as little as necessary.
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Auction
• An auction is ;
– universal (…may be used to sell any good)
– anonymous (…the bidders’ identities play no role)
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Auctions : When?
• Auctions are useful when
– selling a commodity of undetermined quality.
– the goods do not have a fixed or determined
market value, in other words, when a seller is
unsure of the price he can get.
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Auctions : Where?
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internet auctions
art and antiques
flowers, fish
real estate
spectrum licences
bonds and stocks
treasury bills
drilling rights
houses
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Advantages of Auctions
• An auction offers the advantage of
simplicity in determining market-based
prices (for both).
• It is efficient in the sense that it usually
ensures that
– resources accrue to those who value them
most highly;
– sellers receive the collective assessment of
the value.
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Advantages of Auctions
• The price is set by the bidders (for bidders).
• Choosing to sell an item by auctioning is
– more flexible than setting a fixed price;
– less time-consuming and expensive than
negotiating a price (for sellers).
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Disadvantages of Auctions
• "Winners curse" is widely recognized as
being that phenomenon when a "lucky"
winner pays more for an item than it is
worth. Auction winners are faced with the
sudden realization that their valuation of
an object is higher than that of anyone
else.
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Auction Terminology
• First Price--when a single item is sold for
the exact amount bid.
• Second-Price Auction--The winner pays
the second highest bid price.
• One-Sided Auction-- only bids are
permitted, but not "asks".
• Two-Sided auction--bids and asks
allowed.
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Auction Terminology
• Reserve Price--lowest acceptable price.
Useful in discouraging buyer collusion
• Rings--Some subset of bidders who band
together and agree not to compete against
each other.
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Bidder Valuations
• Private valuation
– Goods are acquired goods for personal
consumption;
– The bidder makes his own private valuation of
the item for sale.
– All bidders have private valuations and tend to
keep that information private.
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Bidder Valuations
• Interdependent values:
– A bidder’s value might be affected by
information available to the other bidders.
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Bidder Valuations
• Common valuation
– Goods are acquired goods for resale or
commercial use;
– An individual bid is predicated not only upon a
private valuation reached independently, but
also upon an estimate of future valuations of
later buyers.
– The item is really worth the same to all, but
the exact amount is unknown
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Auction Types
• William Vickrey established the basic taxonomy
of auctions based upon the order in which
prices are quoted and the manner in which
bids are tendered. He established four major
(one sided) auction types:
– English: Ascending-price, open-cry;
– Dutch: descending-price, open-cry,
– First price-sealed bid
– Vickrey or second price-sealed bid.
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English Auction
• Most common auctions in practice.
• The auctioneer begins with the lowest
acceptable price (the reserve price)
• The item is 'knocked down' (sold) to the highest
bidder
• Winner pays the amount of the bid.
• Winning price will be close to the valuation of the
second highest bidder.
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English Auction
• Factors that Affect the Strategy:
– his value;
– his prior estimate of the other players'
valuations;
– the past bids of other players.
• Optimal Strategy is to bid a little more
than last bid until valuation is reached,
then stop.
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English Auction
• Problems :
– There must be enough competition to drive up
bids (for the seller).
– Open outcry can also reveal information to
others.
– Can encourage collusion
• Bidders agree to keep prices low, possibly
reselling later.
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English Auction
• Problems :
– In an English auction, the underbidder usually
forces the bid up by one small step at a time.
Often a successful bidder acquires an object
for considerably less than his maximum
valuation simply because he need only
increase each bid by a small increment.
• The seller does not necessarily receive
maximum value.
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Dutch Auction
• Bidding starts at an extremely high price
• Bidding is progressively lowered until a buyer
claims an item.
• Buyers have no information about the bids of
other buyers
• Item sold to first buyer who accepts the sellers
offer.
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Dutch Auction
• When multiple units are auctioned,
normally more takers claim the item as
price declines.
– The first winner takes his prize and pays
his price
– Later winners pay less.
• When the goods are exhausted, the
bidding is over.
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Dutch Auction
• Factors that Affect the Strategy:
– his own valuation of the object;
– his prior beliefs about the valuations of other
bidders.
• Optimal Strategy is to offer a little less
than last offer until a bidder accepts the
offer.
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Dutch Auction
• Advantage;
– In the Dutch system, if the bidder with the
highest interest really wants an item, he
cannot afford to wait too long to enter his bid.
• That means he might bid at or near his highest
valuation.
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First Price-Sealed Bid Auction
• Sealed and thus hidden from other
bidders.
• A winning bidder pays exactly the amount
he bid.
• Usually each participant is allowed one
bid.
• Simultaneous move process
– Bidders have no information about bids of
other buyers
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First Price-Sealed Bid Auction
• a sealed-bid format has two distinct
periods
– a bidding period in which participants submit
their bids;
– a resolution phase in which the bids are
opened and the winner is determined.
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First Price-Sealed Bid Auction
• When multiple units are being auctioned,
the auction is called "discriminatory"
because not all winning bidders pay the
same amount.
• In a "discriminatory” auction, sealed bids
are sorted from high to low, and items are
awarded at highest bid price until the
supply is exhausted.
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First Price-Sealed Bid Auction
• From a bidder's point of view, a high bid
raises the probability of winning but lowers
the profit if the bidder is victorious.
• A good strategy is to shade a bid
downward closer to market consensus, a
strategy that also helps to avoid winner's
curse.
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First Price-Sealed Bid Auction
Example
Auction Item
MONARIZA
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First Price-Sealed Bid Auction
Example
$ 5.000.000
$ 6.000.000
MrMrs. Ersoy bids
$ 8.000.000
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Vickrey Auction
• The uniform second-price auction is
commonly called the Vickrey auction.
• The bids are sealed, and each bidder is
ignorant of other bids.
• The item is awarded to highest bidder at a
price equal to the second-highest bid.
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Vickrey Auction
• The dominant strategy for each participant
is to bid their actual valuation.
– Prevents needless and expensive
counterspeculation
– Ensures that goods go to those who value
them most.
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Vickrey Auction
• Bidding high carries the risk of winner's
curse.
• When auctioning multiple units, all winning
bidders pay for the items at the same price
– the highest losing price.
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Vickrey Auction
Example
Homer
Auction Item
$5
Bart
Lisa
$3
$2
Homer wins and pays $3
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Double Auction
• Although not classified as one of the major
four auction types, the double auction
has been the principal trading format in
financial institutions.
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Double Auction
• Both buyers and sellers select bids.
• Most often, these auctions are continuous
– Any time there is a possible match, it is made.
– Trading do not stop as each auction is
concluded.
• The İMKB, NASDAQ, most futures
markets work this way.
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Online Auctions
• In the physical world, certain types of
auctions require all parties to be
geograpfically colocated (in an auction
house).
– higher transaction costs.
• Online auctions do not require participants
to be colocated geographically.
– Serious cut on transaction costs.
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Online Auctions
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Selling at Auction
• From a Seller’s Perspective
– Finding out the value of your item
• Visit an auction house to get your item valued
• Provide the auction house with as much information as
possible
• Try to get more than one valuer’s opinion
– Should you decide to sell
• Decide a reserve price
• Find out how soon your item will apperar at auction
• Choose a specialist auction for a specialist item
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Buying at Auction
• From a Bidder’s Perspective
– What to do before an auction
• Go to auctions regularly
• Buy the auction catalogue
• Look at the estimate
• Attend saleroom previews
• Ask for a condition report
• Find out if you need to register
• Check the auctioneer’s commission
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Buying at Auction
– What to do at an auction
• Set yourself a bidding limit
• Work out your timing
• Follow the bidding
• Attract attention to your bid
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Haphazard Systems
1. The Written-Bid Auction:
All bids Should arrive in written form.
2. The Handshake Auction:
Buyers communicate their bids to an
auctioneer by squeezing his fingers.
3. The Whisper Auction:
The auctioneer announces that an item
is for sale, and buyers whisper their bids
in his ear.
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Non-Haphazard Systems
1.
The time-Interval Auction:
It is similar to an English form, however all
bidding must be completed within a certain
time allotment
2. The Silent Auction:
The silent auction is a variation of the writtenbid auction, but in this format the participants
bid knowing how much competitors have
offered, and so prices move steadily upward.
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Non-Haphazard Systems
3. The Audible-Bid Rotation Auction
The auctioneer writes the current high bid on a
blackboard and erases it as larger bids are
made. Each bidder, in turn, either raises his bid
or passes. The merchandise is awarded to the
highest bidder at the highest price.
4. The Swiss Auction
If the designated winner does not wish to accept
the project, the architects will usually (but not
always) allow him to withdraw the bid.
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Auction Strategies
In Negotiation Process
• When the auctioneer wants to receive
highest possible price and the bidders
want to pay lowest possible price,
competitive goals can be seen both
between the potential buyers like bidders
and between auctioneer and bidders a
little different.
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Auction Strategies
In Negotiation Process
• There is generally a zero – sum game
between bidders and self- centered goals
can play a role with competitive goals.
• Some aggressive goals can be used to
take competitive advantage.
• Auctioneer makes some tricks not to lose
a good bidder with defensive goals.
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Auction Strategies
In Negotiation Process
• No Concession strategy
– Especially after the first price is decided,
because of short time and the same item is
available to everyone in the auction, would be
implemented by the aim of receiving the
highest possible price.
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Auction Strategies
In Negotiation Process
• No Further Concession strategy
– Can be implemented after some concessions
have been made in the auction. When the
opening price given by auctioneer is less than
the bid that one of the bidders thinks, this
price would be thought as Concede First
strategy.
– Sometimes in auctions there would be no sell,
so the auctioneer could focus on Goals Other
Than To Reach Agreement.
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Auction Strategies
In Negotiation Process
• Auctioneer can act to finalize negotiation
with an agreement by Moving for
Closure rather than risk not making the
sale in the auction.
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Thank You…
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