Sealed first-price auction
Encyclopedia
A first-price sealed-bid auction is a form of auction
where bidders submit one bid in a concealed fashion. The submitted bids are then compared and the person with the highest bid wins the award, and pays the amount of his bid to the seller. This differs from a standard English auction
in that bids are not open or called; bidders must submit valuations based upon supposed market value
and their own willingness to pay
— as opposed to engaging in competition
through relative prices with other bidders. Other forms of auction include the Vickrey auction
, or second price auction, where the highest bidder wins but pays only the second-highest bid.
From the game-theoretic
point of view, the first-price sealed-bid auction is strategically equivalent to the Dutch auction
; that is, in both auctions the players will be using the same bidding strategies.
These kinds of auctions give the bidders incentive to bid lower than their valuation of the item. More specifically, theoretically, a bidder will bid equal to [one minus (one divided by the number of bidders)] times his valuation.
This type of auction is used at the London Gold Exchange
.
Auction
An auction is a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder...
where bidders submit one bid in a concealed fashion. The submitted bids are then compared and the person with the highest bid wins the award, and pays the amount of his bid to the seller. This differs from a standard English auction
English auction
An English auction is a type of auction, whose most typical form is the "open outcry" auction. The auctioneer opens the auction by announcing a Suggested Opening Bid, a starting price or reserve for the item on sale and then accepts increasingly higher bids from the floor consisting of buyers with...
in that bids are not open or called; bidders must submit valuations based upon supposed market value
Market value
Market value is the price at which an asset would trade in a competitive auction setting. Market value is often used interchangeably with open market value, fair value or fair market value, although these terms have distinct definitions in different standards, and may differ in some...
and their own willingness to pay
Willingness to pay
In economics, the willingness to pay is the maximum amount a person would be willing to pay, sacrifice or exchange in order to receive a good or to avoid something undesired, such as pollution...
— as opposed to engaging in competition
Competition
Competition is a contest between individuals, groups, animals, etc. for territory, a niche, or a location of resources. It arises whenever two and only two strive for a goal which cannot be shared. Competition occurs naturally between living organisms which co-exist in the same environment. For...
through relative prices with other bidders. Other forms of auction include the Vickrey auction
Vickrey auction
A Vickrey auction is a type of sealed-bid auction, where bidders submit written bids without knowing the bid of the other people in the auction, and in which the highest bidder wins, but the price paid is the second-highest bid. The auction was created by William Vickrey...
, or second price auction, where the highest bidder wins but pays only the second-highest bid.
From the game-theoretic
Game theory
Game theory is a mathematical method for analyzing calculated circumstances, such as in games, where a person’s success is based upon the choices of others...
point of view, the first-price sealed-bid auction is strategically equivalent to the Dutch auction
Dutch auction
A Dutch auction is a type of auction where the auctioneer begins with a high asking price which is lowered until some participant is willing to accept the auctioneer's price, or a predetermined reserve price is reached. The winning participant pays the last announced price...
; that is, in both auctions the players will be using the same bidding strategies.
These kinds of auctions give the bidders incentive to bid lower than their valuation of the item. More specifically, theoretically, a bidder will bid equal to [one minus (one divided by the number of bidders)] times his valuation.
This type of auction is used at the London Gold Exchange
London Gold Exchange
London Gold Exchange was a digital currency exchanger founded in 2001. The London Gold Exchange was owned by LGE International LTD., an offshore company registered in Belize, with offices in London, England and Hong Kong....
.