Auction

An auction is a structured process for buying and selling goods or services.

In this system, items are offered up for bids from interested participants. The process typically concludes when the item is sold to the highest bidder. Alternatively, a buyer might use an auction to purchase an item from the lowest bidder. This economic activity is studied through a field called auction theory. This branch of economics examines how different auction types work and how participants behave during the bidding process.

To understand how an auction functions, one must look at the roles of the participants. There are two primary roles: the buyer and the seller. A buyer pays money or provides a barter exchange to acquire a good. A seller offers the good or service to receive payment. Auctions can involve a single seller and multiple buyers, or multiple sellers and a single buyer. The most common method is the open ascending price auction.

In this format, participants bid openly against one another. Each new bid must be higher than the previous one. An auctioneer may announce the prices while bidders submit their offers vocally or electronically.

There are several distinct types of auctions used in modern trade. The forward auction is the most common type. In a forward auction, a seller offers items and seeks the highest possible price. A reverse auction works in the opposite direction. In this version, the roles of the buyer and seller are reversed. The primary goal is to drive the purchase price downward. This allows buyers to find the lowest-price supplier among many competitors. This process creates information transparency because suppliers see competing bids in real-time.

A third type is the double auction, which combines features of both. In a Walrasian auction, the auctioneer takes bids from both buyers and sellers for multiple goods.

Auctions have been a part of human history for thousands of years. Records from 500 BC describe auctions in Babylon.

In the Roman Empire, auctions were used to sell the spoils of war. Soldiers would drive a spear into the ground to mark items for sale. Slaves were often sold in the Roman Forum under the sign of the spear. One of the most extreme historical events occurred in 193 AD. The Praetorian Guard killed Emperor Pertinax and offered the entire Roman Empire to the highest bidder. Didius Julianus won the empire by paying 6,250 drachmas per guard. In China, the personal belongings of deceased Buddhist monks were auctioned as early as the seventh century AD.

As time passed, new and unusual methods emerged. In 17th and 18th-century England, people used candle auctions.

An auctioneer would light a candle to signal the start of a sale. The auction ended when the candle flame expired. This prevented bidders from knowing exactly when the sale would finish. Some people even used unpredictable events, like footraces, to end an auction. By the late 1700s, auctions for artwork were common in London coffeehouses and taverns.

During this time, the first major auction houses were established. The Stockholm Auction House was founded in 1674. Sotheby's was founded in London in 1744. Christie's, the world's largest auction house, was founded by James Christie in 1766.

Auctions play a massive role in the global economy today. They can increase the visibility of rare items, which drives up demand and price. For example, a Roman-era bronze sculpture of "Artemis and the Stag" sold for $28.6 million in 2007.

The most expensive item ever sold at auction was Leonardo da Vinci's "Salvator Mundi" in 2017, which reached $450.3 million. In 2008, the gross revenue for the entire auction industry was approximately $268.4 billion. Governments also use auctions to raise huge sums of money. In 2019, Russia's crab quota was auctioned for €2 billion. Between 1999 and 2002, the British government raised about $3.5 billion by auctioning gold reserves.

The rise of the internet has transformed the industry once again. Digital platforms allow auctioneers to find buyers from all over the world. This makes it practical to trade a much wider variety of commodities. In the 1990s, the multi-attribute auction was invented to handle complex contracts for electricity and construction. The early 2000s saw the invention of the Brazilian auction for trading gas. Today, websites like eBay are typical examples of online auction platforms. These digital tools make traditional auction theory more complex because they allow more people to participate simultaneously.