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What Is An Auction?

An auction is a system of buying and selling goods or services by allowing potential buyers to place competitive bids and then sell to the highest bidder.

Deeper Definition 

An auction is a sales event where potential buyers compete against themselves to purchase a valuable item. Typically, It starts with the auctioneer appraising the item at a low price to attract many buyers to bid. The cost of the thing begins to increase as more people bid on it, with each new being higher than the previous bid. When no one can bid higher than the last bid, the auctioneer sells the item to the highest bidder.

Historically, auctions have been around as early as 500 BC. The ancient city of Babylon held an auction yearly to set women up for marriage. Back then, it was illegal for women to get married without going through an auction.  Auctioneers would begin with women they thought to be the most beautiful among the women auctioned and progressed to the least.

There are two main formats in which auctions take place. They are:

  • Open Auctions: This takes place in an open setting, either physically or online. In an open auction, bidders are fully aware of all the bid amounts others placed. 
  • Closed Auctions: Bidders submit their bids discreetly to the auctioneer in a closed auction. Only the auctioneer is aware of all the bid amounts offered.

Broadly, there are two types of auctions:

  • English: It is the most common type of auction used today, especially for the sales of art, antiques, and Wine. This type begins with a low price then gradually increases until it sells at the highest price a person is willing to pay. 
  • Dutch: It is a type of auction where the auctioneer begins with a high asking price and gradually lowers it until a bidder is willing to at that price. Usually, this type applies when selling perishable items.

Auction Example

Victoria wants to sell a valuable piece of art, and Philip advises her that she could get a higher price if she invited people to bid on it instead of selling it at a flat rate. So she sets up an auction sale for the art online and invites people to bid within an hour. Victoria listed the artwork with an asking price of $5,000. At the end of the bidding process, she sold it to someone for $38,000.

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