Types and examples of Auctions

The primary types of auctions found on the Internet are English auctions, Dutch Internet auctions, Name Your Own Price auctions, and so-called penny auctions.

The English auction is the easiest to understand and the most common form of auction on eBay. Typically, there is a single item up for sale from a single seller. There is a time limit when the auction ends, a reserve price below which the seller will not sell (usually secret), and a minimum incremental bid set. Multiple buyers bid against one another until the auction time limit is reached. The highest bidder wins the item (if the reserve price has been met). English auctions are considered seller-biased because multiple buyers compete against one another — usually anonymously.

The Dutch Internet auction format is perfect for sellers that have many identical items to sell. Sellers start by listing a minimum price and the number of items for sale. Bidders specify both a bid price and the quantity they want to buy. The uniform price reigns: winning bidders pay the same price per item, which is the lowest successful bid. This market-clearing price can be less than some bids. If there are more buyers than items, the earliest successful bids get the goods.

The Name Your Own Price auction was pioneered by Priceline and is the second most-popular auction format on the Web. Although Priceline also acts as an intermediary, buying blocks of airline tickets, hotel rooms, and vacation packages at a discount and selling them at a reduced retail price, it also lets users specify what they are willing to pay for goods or services.

In a penny (bidding fee) auction, the bidder must pay a non-refundable fee to purchase bids. These auctions are controversial because bidders can spend significant money on bid fees without winning the item.