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Commentary
Introduction to AuctionsWhere do auctions come from? A brief history An auction is an interesting concept – and a very old concept. Auctions have been found to exist as far back as 500 B.C. and have stuck around, adapting to the changes in societies and cultures. Many pinpoint the auctioning off of Joseph of the Coat of Many Colors (of biblical fame) into slavery by his brothers, as the first known auction. Slave auctions unfortunately became a very common type of early auction. Others point to Babylon in 500 B.C. as the origin of the auction. In these early auctions, women, sought after as brides, were the commodities offered for sale. Attractive brides would command a great price; unfortunately, more homely women would have to be accompanied by a dowry, making the winning bid price negative. In other words, the winning bidder would actually have to be paid to marry the women! Some early auctions had incredibly high stakes. In 193 A.D., the entire Roman Empire was actually auctioned off! The highest bidder, Didius Julianus, won the bidding at a price of 6,250 drachmas for each Roman guard. He didn’t get to enjoy his purchase for long though, since he was beheaded two months later by Septimius Severus during his conquest of Rome. The ancient Romans are generally credited with being the first to organize the sale of goods at auction. The Romans used auctions to sell goods produced in the area, as well as the spoils of Roman conquests and property needing to be liquidated. Asian cultures also incorporated auctions into their societies. There is evidence that during the seventh century, auctions were a device used by Buddhist temples and monasteries to dispose of the possessions of deceased monks. A common type of auction used in China was the “handshake auction” where bidders would grasp the hand of the auctioneer and press their fingers against his hand to indicate the amount of their bid. Each handshake was done under the cover of a cloth so that others couldn’t see the bid. Modern auctions, as we know them, sprung from the Netherlands’ fine art auctions. During the 16th and 17th centuries, paintings and prints were sold in a type of auction that combined elements of a normal or “straight” auction with those of a “reverse” auction. (See below for details on straight and reverse auctions). The slave auctions represent a dark and tragic period in American history. Slaves were shipped to America from the West Coasts of Africa. When a slave ship arrived, the slaves were immediately prepared for auction. For slaves that had been captured and brought to America with members of their family, the slave auction was often the last place in which they saw their family members, as each slave was auctioned off and “won” by different persons. Slave auctions generally fell under the category of straight auctions; however, the slave traders used many means to further their business objectives. Another common method was to charge each buyer a flat rate, allowing the buyers to rush into the pen of the slaves, grabbing the ones they wanted. In the 1800’s, the U.S. began to use auctions in areas besides agriculture and slavery. In 1883, the U.S. opened its first fine art auction house, the American Art Association, founded by Thomas Kirby in New York City. The Association added touches of class and theatrics to the auction format that would be imitated by many later auction houses. Famous auction houses such as Sotheby’s and Christie’s, which opened their U.S. offices in the 1960s, further refined the Association’s innovations. The new era for auctions began in 1995 with the birth of the online auction. The founding of Internet auction companies such as eBay, has led to a renaissance of sorts for the auction. Online auctions have reintroduced auctions to the masses, and changed the way goods are bought and sold. The online auction market was estimated to be a $15.5 billion industry in 2001. From Dutch to Yankee: definitions of some of the many types of auctions Imagine trying to play a game when you don’t know anything about it, not even its name. Imagine trying to play a game when you think you know the rules, but instead they are really very different than what you thought. To avoid this type of situation when participating in an auction, it’s important to understand what type of auction you are getting involved in before you start bidding. This section will teach you about the various types of auctions through the experiences of our “expert” auction-goers and auctioneers, Erum and Cy. The straight auction (also called the ascending price or absolute auction) A straight auction is what many think of as the traditional form. A single item is offered at an opening bid price from which later bids ascend. Bidding continues until the final, highest bid, has been cast. The sale is then made to the final bidder at that final bid price. Example: Erum wants to win the featured concert tickets at a charity auction. She opens the bidding at $100. A second bidder escalates the bid to $120. Erum bids again for $150. Another bidder offers $200. Erum tries again with a bid of $215. No one else bids again. Erum has won the straight auction. The reserve price auction (also called the minimum-bid or English auction) A reserve price auction operates in the same manner as a straight auction, with bidders trying to outbid each other for the item. The major difference is that the seller establishes a secret “reserve price,” the lowest prices that he will accept for the item offered. If the bidding does not reach the reserve price, the seller is not obligated to sell. Example: Cy knows that he could sell his grandfather’s antique dresser for $2,000 to a neighbor; however, he hopes to make more than that at an auction. So, he tells the auctioneer that the lowest he will accept for the dresser is $2,000. Cy asks the auctioneer not to announce this price to the bidders because he wants them to bid as high as they think the dresser is worth, potentially much more than $2,000. If the bidding comes in lower than $2,000, Cy will not sell the dresser at the auction, but instead to his neighbor. If the bidding ends up being higher than $2,000, Cy will sell the dresser at the auction. The fixed price auction (also called the buy-it-price auction) A fixed price auction operates much like a straight auction, except that there is a buyout price at which a bidder can simply buy the item being auction, ending the auction. Example: Erum finds the last Ewok figurine, Urgah Lady Gorneesh, that she needs to complete her Ewok collection, on an online auction site. The bidding has been pretty slow and the bidding price is still low. However, Erum knows that the competition for Ewok figures is fierce, and that all the major bidders will try to outdo each other with huge bids in the last few seconds of the auction. (This is known as sniping or e-sniping if using electronic technology). Erum notices that the seller has established a buy-it-price. Even though the buy-it-price is much higher than where the bidding is currently at, Erum decides to go ahead with this option to ensure that she gets Urgah Lady Gorneesh. The seller is notified of Erum’s bid and the auction is closed…with the precious figurine soon to be in Erum’s hands. The Dutch auction This type of auction is used to sell multiple units of the same item at the same time. A bidder can bid on one or more of the units offered for sale. The highest bidders take the units when the auction wins, and pays the lowest successful bid price. Example: When Mike offered three #23 Bulls jerseys in a Dutch auction, Jerry bid on two at $100 each, Scottie bid on one at $75, and Dennis bid on one at $50. The jerseys were therefore sold as follows: Jerry gets two and Scotties gets one, with each paying $75 per jersey. The Yankee auction This is another type of auction that is used to sell multiple units of the same item at the same time. It operates identically to the Dutch auction except that the winning bidders each pay their winning bid price instead of the lowest winning bid price. In other words, in a Yankee auction it is possible to have buyers that pay different prices; whereas in a Dutch auction, everybody pays the same price. Example: Same facts as above except that with a Yankee auction, Jerry would buy two jerseys at $100 each and Scottie would buy one at $75. The reverse auction In a reverse auction, the competition is among the sellers rather than the
buyers. A prospective buyer sets forth the item he is looking for and sometimes
includes a target price. Sellers who can provide the item then bid against
each other, with the seller who can provide the item at the lowest price winning
the auction. The descending price auction A descending price auction is a third type of auction used to sell multiple units of the same item at the same time. In a descending price auction, multiple items are offered at an opening bid price. A potential buyer can bid on one or more units of the item. The price is then lowered in successive decrements until the entire lot has been purchased. Example: Erum opens her birthday presents and realizes that she has received six Yoda figurines. She only wants one, so decides to auction off the other five in one auction. She informs the bidders of the number of figurines for sale. Bidding begins at a high price of $80 set for the bidders, which anyone can bid on by agreeing to that price and buying as many of the figurines as they please. Erum decides to drop the price by $10 each hour. This means that the longer a bidder waits, the better the price will be, but the less likely it will be that a figurine will be left. The auction turns out as follows: three bidders enter the bidding in the third hour, each buying a figurine for $60 a piece. One bidder enters the auction in the fourth hour, getting her Yoda for $50. Many bidders wait until the fifth hour; however, since there is only one left, only the first bidder of the hour gets the remaining figurine for $40. Next: What You Need to Know Before You Go Online: Privacy Concerns |
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