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==Types of Auctions==

==Types of Auctions==

===English Auction===

===English Auction===

An English auction is one of the most common auctions, particularly popularized by the auction website [[eBay]].  In this type of an auction, the seller offers an item up for bidding.  The seller will describe the attributes of the item being auctioned before bids begin.  The opening bid is almost always less than what the value of the item is (for example, many auctions on eBay start out at $0.99, despite being worth upwards of thousands of dollars). Buyers can then bid up incrementally on the item.  Once there are no more bids to be placed, the item goes to the highest bidder.

An English auction is one of the most common auctions, particularly popularized by the auction website [[eBay]].  In this type of an auction, the seller offers an item up for bidding.  The seller will describe the attributes of the item being auctioned before bids begin.  The opening bid is almost always less than what the value of the item is (for example, many auctions on eBay start out at $0.99, despite being worth upwards of thousands of dollars). Buyers can then bid up incrementally on the item.  Once there are no more bids to be placed, the item goes to the highest bidder.

===Penny auctions===

===Penny auctions===

Penny auctions are primarily found on the internet.  In this type of auction, a high-value item starts off with an asking price of $0.01.  Bidders can only bid up by a penny.  However, bidders have to purchase bids from the auction house, the value of which runs anywhere from $0.60 to $1.00.  Every time a bid is placed on an item, the time left in the auction is reset.  This continues until no bids are placed before time runs out.  This is often considered a form of gambling, as the auction is extremely biased towards the house (i.e., if a computer sells for $95.00, the firm can make up to $9,499, depending on how much the bids cost the bidders)<ref>[http://www.usatoday.com/tech/news/2011-02-06-penny-auctions_N.htm Penny auctions promise savings, overlook downsides] USA Today, 02/06/2011</ref>. If a bidder does not win an item, they are still out all the money they spent on purchasing bids.

Penny auctions are primarily found on the internet.  In this type of auction, a high-value item starts off with an asking price of $0.01.  Bidders can only bid up by a penny.  However, bidders have to purchase bids from the auction house, the value of which runs anywhere from $0.60 to $1.00.  Every time a bid is placed on an item, the time left in the auction is reset.  This continues until no bids are placed before time runs out.  This is often considered a form of gambling, as the auction is extremely biased towards the house (i.e., if a computer sells for $95.00, the firm can make up to $9,499, depending on how much the bids cost the bidders).<ref>[http://www.usatoday.com/tech/news/2011-02-06-penny-auctions_N.htm Penny auctions promise savings, overlook downsides] USA Today, 02/06/2011</ref>  If a bidder does not win an item, they are still out all the money they spent on purchasing bids.

==Strategies==

==Strategies==

For a bidder, the strategy is to always bid less than what you believe the item to be, assuming that your valuation is higher than the other bidders.  A bidder's value of an item may be lower or higher than the actual retail value of the item for auction, and it differs amongst potential bidders (for example, hard-to-find popular retail items are usually sold for higher than the actual retail price on eBay).   

For a bidder, the strategy is to always bid less than what you believe the item to be, assuming that your valuation is higher than the other bidders.  A bidder's value of an item may be lower or higher than the actual retail value of the item for auction, and it differs amongst potential bidders (for example, hard-to-find popular retail items are usually sold for higher than the actual retail price on eBay).   

In the case of a second-price auction, it is advantageous to bid your true value, assuming that it is higher than all the other bidders valuations.<ref name="gardner">Gardner, Roy. ''Games for Business and Economics''; John Wiley & Sons, Inc.; Hoboken, New Jersey. (2003) </ref>

In the case of a second-price auction, it is advantageous to bid your true value, assuming that it is higher than all the other bidders valuations.<ref name="gardner">Gardner, Roy. ''Games for Business and Economics''; John Wiley & Sons, Inc.; Hoboken, New Jersey. (2003)</ref>

==Auctions & Game Theory==

==Auctions & Game Theory==

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In this case, Bidder #1 has a dominant strategy of bidding $1.  Therefore, if Bidder #2 bids $2, they will win the auction.  For this case, if you know what another person values an item at, shave your bid to their value, and do not go over yours. <ref name="gardner" />

In this case, Bidder #1 has a dominant strategy of bidding $1.  Therefore, if Bidder #2 bids $2, they will win the auction.  For this case, if you know what another person values an item at, shave your bid to their value, and do not go over yours.<ref name="gardner" />

==References==

==References==

{{reflist|1}}

{{reflist|1}}

==External Links==

==External links==

*[http://www.ebay.com eBay Online Auctions]

*[http://www.ebay.com eBay Online Auctions]

*[http://www.sothebys.com Sotheby's Auction House]

*[http://www.sothebys.com Sotheby's Auction House]

[[Category:Economics]]

[[Category:Economics]]

[[Category:Commerce]]

[[Category:Commerce]]