Three Types

• English: This is an auction in which the price is set at a relatively low amount, then prospective buyers offer incrementally higher bids until no one bids higher. Highest bidder buys the commodity. This is the most common type of auction. Agricultural commodities and personal assets are commonly sold using the English auction. Internet auctions are an increasingly popular form of the English auction. The English auction allows sellers to extract the highest sale price from available bidders.


• Dutch: This is an auction in which the price is initially set at a relatively high amount, then sequentially decreased until a buyer agrees to make the purchase. The first person agreeing to the price makes the purchase. Dutch auctions are most commonly used for and associated with the sale of Dutch tulips (hence the name).


• Sealed Bid: This is an auction in which prospective buyers submit secret, or sealed, bids for a commodity. Once submitted, the bids cannot be changed. Because the bids are secret, one prospective buyer is unlikely to know the bids of the others. The buyer with the highest bid makes the purchase. Financial instruments, especially U.S. Government Treasury Securities, are commonly sold using sealed bid auctions.

Other Variations

One variation is the theoretical Walrasian tatonnement. In this auction format a hypothetical auctioneer matches up demand prices and supply prices until the quantity demanded balances out quantity supplied and the market achieves equilibrium.

With a Vickrey auction the winning bidder pays the second highest bid price. A variation of the Vickrey auction is commonly used on Internet auction sites in which the winning bid is automatically incremented slightly above the second highest bid.