Online Auctions Versus Traditional - A Little History

Some History

Before you can really appreciate the online version of this business, you need to know a little about the traditional version of it. My research revealed that auctions can be traced back through history to around 500 B.C. Apparently, at that time, they had an annoying habit of selling off wives annually in Babylon. Thankfully, auctions (and the rights of women) have undergone a major evolution process.

Five Types

There are probably about five types of traditional auctions, and I suppose, that in theory, any or all of them could be converted into online auctions.

English auction consists of the bidding taking place openly with each bid being higher than the previous one. In this type, the bidding ends when no one wishes to bid higher or when the "buy-out" amount has been reached. At this point, the item is awarded to the highest bidder. This is the preferred method by the famous English auctions houses Sotheby's, Christie's and Phillips.

Dutch auction is a little different in that the auctioneer starts the bidding with a higher asking price. If no bidders are willing to join in, the price is lowered until one bidder is willing to accept the price or until a predetermined minimum price has been reached. The winning bidder pays the last announced price for the item. The Dutch tulip auctions of the 17th century as the best known examples of this type of auction.

Sealed-bid first-price auction: Enter the sealed bid auction. In this type, all bids are submitted simultaneously in a sealed fashion. The sealed bids are opened at the same time and the item is awarded to the highest bidder, who pays the price he or she submitted.

Sealed-bid second-price auction: this method works identically to the sealed-bid first-price method with one exception. When the sealed bids are opened, the award goes to the highest bidder but he or she pays the price of the second highest bid.

All-pay auction: In this type, all the bidders must pay the price they bid whether they win the prize or not. Again, the highest bidder wins. As you can imagine, this method of auction is not used often for commercial purposes.

Advantages to Online auctions versus traditional auction houses

Online auctions business models have some advantages over the traditional style auction houses.