The Most Common Types of Online Auctions in 2019

Lauren Fram
Lauren Fram  |  January 23, 2019

Auctions have become more and more accessible as they’ve moved into the digital realm.

With sites like eBay making it possible for anyone to create an online auction or bid in one, many people remain only aware of the more traditional online auction format that mimics the live version. But with auction software, businesses can create auctions that leverage the competitive nature of their buyers. Penny auction sites, for instance, attract a wide variety of competitors in a short period of time and can only be found online.

Depending on the items being auctioned and the personalities of bidders, businesses may want to give these types of auction a shot.

What is a reverse auction?

A reverse auction, as the name implies, is the opposite of a traditional auction. Instead of buyers bidding on a single item, sellers vie to provide goods and services to a buyer. Rather than driving prices up with each bid, reverse auctions drive prices down until the buyer is offered a price they are willing to pay. However, the winner is not always the business offering the lowest price.

how a reverse auction works

Reverse auctions are typically used in business settings, often for purchasing and procurement. If a business needs 100 desks for a new office, it might hold a reverse auction to see which suppliers will compete to provide the desks and for an optimal price. However, the lowest bidder does not necessarily automatically win the contract. If a bidder can provide 100 desks one week before the deadline, that may be more attractive than a business with a lower price who can only deliver the day of the opening.

Because the content of a supplier’s bid varies from business to business, reverse auctions are flexible and best suited for service contracts. Many government contracts are determined by reverse auctions, since the federal government is often held to strict budget limits. Reverse auctions can take months as businesses prepare proposals and adjust their offerings based on the specifications of the buyer. And there is often stiff competition between vendors. Often, cost savings make it worth extending the procurement process.

What is a penny auction (or bidding fee) auction?

Penny auctions, also known as bidding fee auctions, are exclusively online auctions where a buyer purchases the right to bid in the auction before it begins. The name comes from the fact that bids go up by a penny. The catch is that buyers pay for a finite number of bids before they enter the auction. Auctions are also timed, so once the time period is up, the highest bid is the winner. The allure is the potential to pay much less than retail price for a product, so long as a large number of bidders are not driving the price up quickly in a heated bidding war.

Say an iPhone is up for auction. While the opening bid may be one cent, you may also need to purchase 50 bids for $50. Once you bid 50 times on the iPhone, you will either need to purchase another bid pack or stop bidding. If you are lucky enough to win the iPhone at a bid of $100, you will need to pay the $100 in addition to the money spent purchasing bids. This way, penny auction sites can afford to offer expensive merchandise at greatly reduced prices. The downside is penny auctions are extremely similar to gambling and have similar outcomes, with the odds being greatly stacked against bidders.

What is an English auction?

English auctions are the most traditional and common form of online and live auction. A single item is put up for auction with a starting bid attached, and individuals place ascending bids until no one is willing to outbid the final bidder. The winner is the bidder with the highest bid.

In person, this format is efficient and easy to follow. It also translates well online. The transparency into previous bids encourages future bids, and technology allows consumers to determine a max bid before the auction even starts. If that max bid is exceeded, participants can decide whether to make another bid or back out of the auction.

Online, English auctions may also run for several days or weeks, rather than a few minutes. This offers a large number of buyers the opportunity to view the listing and decide how much they would like to bid based on current activity. Some sites may even allow users to follow a particular auction and receive email updates every time a bid is made.

What is a Dutch auction?

Dutch auctions function the same as English auctions, but in reverse. The opening price starts high and is lowered until a buyer chooses to accept it. While this auction format is much less popular than the English auction, it also translates well online. This is similar to a reverse auction, but there is only one seller gradually lowering the price of an item rather than multiple sellers offering various prices for the same service.

Dutch auctions are typically used when a company is seeking investors. The company sets a share price and gradually lowers it, seeing how many shares people are willing to buy at each price. At the end of the auction, the share price with the most bids for the most shares becomes the price all winners pay for their shares.

What is a first-price sealed-bid auction?

First-price sealed-bid auctions are similar to English auctions in that the highest bid wins, but all participants submit a single, sealed bid to the auctioneer. The auctioneer then reads all the bids and the highest bid is the winner. Unlike most auctions, competition does not drive the final price because no one knows how much other bidders are willing to pay for an item.

What is a Vickrey auction?

A Vickrey auction works similarly to a first-price sealed-bid auction, but the winner (the highest bidder) only pays what the second-highest bidder offered. So if the highest bid was $100 and the next-highest bid was $95, the person who suggested $100 will only pay $95. This is intended to prevent bidders from placing bids that are too high or too low, so the item is sold for a supposedly more accurate value. With all bids remaining hidden, buyers are forced to consider what they think an item is actually worth.


Next steps for your professional auctioning

Auctions are a great way to generate excitement around an item or product or ensure you’re paying a fair price for a service. While 2019 retail trends are focusing on e-commerce and omni-channel marketing technology, online auctions and online auction sites should not be overlooked. You can host an in-person auction that includes online bidders, or hold an auction digitally. You can have a public auction or a private auction online, where you have the advantage of approving participants ahead of time. Bidders can compete in real time or bid at their leisure. The options are nearly endless.

Whether you are an auction house or an individual holding a silent auction for charity, auction software can help you organize and optimize.

To learn more about different types of auctions, check out this guide to silent auctions in 2019.

Lauren Fram
Author

Lauren Fram

Having lived on both the East and West Coasts, Lauren has settled in the happy medium of the Midwest. After nearly 13 years in Chicago, she has fully co-opted the Midwestern habit of saying "oop" when nearly bumping into things. In her free time she enjoys games of all sorts, and is particularly fond of board games and tabletop RPGs.