Auction Glossary
Auctions by Loretta Mester
First Price Auctions - Whatever the the specifics of the auction, the winner is the individual submitting the highest bid. The winner pays the submitted bid.
Second Price Auctions - Whatever the specifics of the auction, the winner is the individual submitting the highest bid. The winner pays the amount of the second highest bid.
Take It or Leave It Auction - The seller posts a fixed price and the first person willing to pay it is the winner.
Sealed Bid Auction - Each participant writes his bid on a piece of paper and puts it in an envolope. All the envelopes are opened at once and the seller is comitted to delivering the good to the highest bidder. The price paid is the amount bid by the winner.
English Auction - The auctioneer announces a low price and invites ascending bids until no one is willing to go above the last bid made. Whoever made the last bid gets the good at the price that was bid.
Dutch Auction - The auctioneer announces a high price and then announces successively lower bids. This continues until a prospective buyer calls a halt by offering to buy at the current price. This is equivalent to an 'outlet' store successively lowering the marked prices on the clothes on the rack.
Vickrey Auction - This is a variant on the sealed bid auction in which the winner pays the highest amount bid by a loser.
'Losers Pay Too' Auction - In this auction the good goes to the highest bidder. However, losers must pay their last bid as well. To whom do the losers pay their bid?
Feasible - The set of mechanisms from which the seller may choose to sell her good.
Mechanism - The set of rules that the seller announces to prospective buyers for the purpose of transferring ownership of the good.
Optimal - That mechanism which results in the greatest net gain for the designated economic agent. The seller's net gain might be defined in terms of the speed with which the good is sold or the total price received.
Risk neutral - An economic agent is said to be risk neutral if she is indifferent between being given $1 and playing a game in which she wins nothing with probability 1/3 and wins $1.50 with probability 2/3.