Most people who have ever attended or taken part in an auction have experience with English auctions. For those in the United States, these are the most common types of auctions and are generally the type that third-party auction sites most often use. While this type of auction may seem to be the most simplistic, it can be more complicated and may not always be the best choice for sellers.
In an English auction, an item is placed up for bid and the seller generally sets a reserve price. The reserve price is the minimum selling price for the item and is generally not known to bidders. That does not mean that bidding will begin at the reserve price. Sometimes these auctions begin below the reserve price and if that reserve price is not met, then the item is not sold and the transaction is not completed.
After the reserve price is set, bidding begins at a price determined by the seller and increases in previously specified increments. With online auctions, either the seller or the auction site will set the length of time the auction will last. When the auction ends, the highest bidder is named the winner (if his bid is higher than the reserve price) and he pays his the price he bid. For example, a seller may have a used computer up for auction. He may set the reserve price at $100 and may start bidding at $50. Additionally, he decided to raise bids in $5 increments and to allow the auction to go on for 14 days. Bidder A bids $100, Bidder B bids $105, and Bidder C bids $150. Bidder A then places a second bid for $160 followed by a second bid from Bidder B for $175. When the bidding ends fourteen days later, Bidder B is the winner and he pays $175 for the used computer.
English online auctions can also be further complicated by sniping and by proxy bidding. Sniping is the practice of waiting until an auction is almost over and placing a higher bid. Generally, snipers have been watching the auction for a number of days but refrain from placing a bid because they do not want to drive up the price by expressing interest. Proxy bidding is the ability to set a maximum bid amount in order to continue bidding even when not present or taking an active part in the auction. For instance, Bidder A may place a maximum bid of $125 and a current bid of $100. Technically, this Bidder A has bid $100. If another Bidder B places a bid of $115, then the Bidder A remains the high bidder but he his actual bid would go up to $120. If Bidder B placed a bid for $130, then Bidder A would be outbid and would have to place a new bid in order to continue participating in the auction. Sniping and proxy bidding add in the need for further strategy. Bidders who get into the auction early must try to determine the maximum price the item will reach and must keep in mind the possibility of losing out to a last minute sniper.
esides these complications, English auctions are not always the best bet for sellers. The price for the item is usually increasing in small increments and the bidding is open so that everyone involved can see the current bids (not the maximum proxy bids, which are kept sealed). Consequently, bidders generally try to work hard to keep the prices lower so that they can purchase the item below its value. When this happens, the seller ends up earning less on the item than they may have realized if another type of auction logic was employed.
On the other hand, English auctions have often caused bidders to become overly enthused by the activities and to bid even more than the value of the item. Paying more for an item than it's value is known as the Winner's Curse. The bidder’s desire to win the auction and/or to beat the competition is such a motivating factor in these instances that many bidders do go far beyond an item's value. The end result, of course, is a greater profit for the seller. However, sellers do not always benefit from the Winner's Curse and other related phenomenon. In many cases they can receive better results by opting for a traditional Dutch auction, which uses a descending-price structure along with open bidding.