Auctions: Glossary of terms

CONCEPT/IDEA	DEFINITION
Absolute Risk Aversion	When a bidder or seller will not accept any risk in the auction process.
Affiliated	When bidders valuations are affiliated, it means that a high value of one bidder's estimate makes high values of the others’ estimates more likely.
Allocation	The distribution of auctioned items among the bidders.
Arbitrage	The process of buying something, such as a commodity or currency, in one place and selling it in another place at the same time.
Ascending Price Auction	An ascending price auction starts with a low first bid or specified reservation price, from which the auctioneer solicits increasingly higher bids until the item(s) is sold to the highest bidder.
Asymmetric	Asymmetric information occurs when the seller knows more about the quality of a product than the buyer does.
AutoMarkDown	In an AutoMarkdown Listing, the price of the item falls rather than rises as time progresses. Listings offer a product group at an Opening Price. This Opening Price then falls at set time intervals. As long as there is Quantity available for the item, your bid guarantees you the item listed at your specified bid price. However, if you wait for the price to drop further, the item may sell out, and the listing will close.
Benchmark Model	The auction model that is most easiest to analyze, and is based on the following four assumptions: the bidders are risk neutral; the independent private values assumption applies; the bidders are symmetric; and payment is a function of bids alone.
Bid Increment	The bid increase between one bid tendered and the subsequent bid tendered.
Bidder’s Perspective	The perspective of the bidder with regard to the auction system. This could refer to expected yield, payoff, information, or a number of areas.
Bidder’s Profit	The bidder’s profit is the difference between his valuation and the price actually paid for the item bid for in the auction.
Cartel	A cooperative group of bidders who collude together to influence the outcome of an auction. It may consist of explicit agreements about which the bidder will be allowed to win any particular auction, or implicit understandings that restraint will be exercised in bidding.
Collusion	Collusion exists in an auction scenario when bidders cooperate in their bids.
Commitment	A system whereby the seller will not renege on a specified agreement e.g. rules or pledge of one’s reputation.
Common Value Case	An auction in which objects are acquired for profitable sale in secondary markets, so that individual bids are predicated not only on personal valuation, but also on the valuation of prospective buyers.
Continuous Double Auction	Similar to NASDAQ. Buyers and sellers continuously view market and prices, make real-time offers, which clear at market price.
Correlated Value	When the uncertainty about each bidder's valuation of the item being sold does not result from inherent differences in bidder's tastes, but it arises because each bidder, having access to different information, has a different estimate of the value of the item. The extreme case of this phenomena is the common value auction.
Countervailing	A bidder or group of bidders deliberately acting against the auction system in order to hide the true market price of the item(s).
Descending Price Auction	An auction in which the bidding starts at a high price that is progressively lowered until a buyer claims the item by shouting “mine!” or, in more modern times, by pressing a button that stops an automatic clock at an acceptable price.
Discriminatory Auction	In a first price auction, when multiple units are auctioned at the same time, the procedure is called a discriminatory auction. The sealed bids are sorted from high to low, and items are awarded at the highest bid prices until the supply is exhausted. Thus, the auction discriminates between the bidders in the sense that they can pay different prices according to the amount they bid.
Divisible Object	An item(s) offered for auction that can be auctioned in smaller parts than the total offered e.g. a land auction.
Dominant Equilibrium	Each bidder has a well-defined best bid regardless of how high he believes his rivals will bid.
Double Auction	Using this format, both sellers and buyers submit bids, which are then ranked from highest to lowest to generate demand and supply profiles. From these profiles, the maximum quantity exchanged can be determined by matching sell offers, (starting with the lowest price and moving up) with demand bids (starting with the highest price and moving down), although the “equilibrium” price may be indeterminate using this methodology.
Dutch Auction	An auction in which the bidding starts at a high price that is progressively lowered until a buyer claims the item by shouting “mine!” or in more modern times, by pressing a button that stops an automatic clock at an acceptable price. When multiple units are being auctioned there are normally more takers as the price declines: the process continues until a price is reached whereby the fixed amount supplied is matched by total demand.
Dutch Auction (Offline Format)	Continuous descending auction: bidders can see current price and must decide if they wish to purchase at the price or wait until it drops. Winner is first bidder at the current price.
Dutch Auction (Online Format)	Dutch auctions are special type of auction designed to handle the case where a seller has a number of identical items to sell. The seller should specify the minimum price (starting bid) and the exact number of items that are available at that price. The bidders bid at or above that minimum price for the number of items that they are interested in buying. At the end of the auction, the highest bidders earn the right to purchase those items at the minimum successful bid. Successful bids are usually ranked in the order of price, quantity and time.
Economic Efficiency	Economic efficiency occurs when resources accrue to those that value them most highly and sellers achieve the maximum value for their assets.
English Auction	The auction equivalent of the ascending price auction. Continuous ascending auction; bidders can see high bid and possibly other bidders’ bids and comments, and can update their bids during the auction. Winner is highest bidder and pays the price bid.
Entry Fee	The fee charged by the seller or auctioneer for bidders to actually enter into the specified auction.
Equivalence	Equivalence exists when there is one to one mapping between strategy sets equilibrium of the two games (or auctions) and they thus result in the same price and allocation.
Expected Payoff	The bidders valuation of the auctioned item minus the amount actually paid for the item.
Expected Price	The minimum amount the seller expects to receive on offering an item(s) for auction.
Expected Revenue	The minimum amount the seller expects to receive on offering an item(s) for auction.
Expected Surplus	The expected surplus is applicable in the common value case, where the difference between the winning bid and the resale value is the expected surplus.
Expected Yield	The minimum amount the seller expects to receive on offering an item(s) for auction.
First Price Auction	This type of auction is normally a sealed bid auction rather than an open bid auction. The term “first price” commonly applies when a single item is being auctioned. In such cases the highest bidder is awarded the item at a price equal to the amount bid.
First Price Sealed Bid Auction	Bidders email in secret bids for item; bids are opened simultaneously and highest one is declared the winner. No chance to update a bid once submitted, and winner pays the price bid.
Full Reporting	Full reporting takes place when a seller fully discloses all the information known to him about the item presented for auction.
Group Buying	When one or more consumers register their interest about a product or products in a website, and as the size of the group increases the price of the product becomes cheaper. The system usually functions in a way that the price drops by a certain increment when the number of potential buyers reaches a threshold point.
High Tech Venturer	A company which is involved in many tech ventures, such as software programming, micropayments, etc.
Honesty	Refers to the sellers’ attitude to revealing all the available information about the item(s) to be auctioned.
Information Advantage	When one bidder or the seller possesses information to which the other participants are not party.
Information Linkage	Information revealed in the process of an auction (e.g. Open bids) that affects the bids of other bidders.
Information Report	Is the information made public to the bidders by the seller about the item for auction
Item Lot	A set of non-identical items, as with land tracts or used cars.
Japanese Auction	Price rises at set increments and participants drop out until only winning bidder remains.
Linkage	No auction mechanism can determine prices directly in terms of the bidders’ preferences and information; prices (and the allocation of the object being sold) can depend only on the reports that the bidders make and on the seller’s information. However, to the extent that the price in an auction depends directly on variables other than the winning bidder’s report, and to the extent that these other variables are (at equilibrium) affiliated with the winner’s value estimate, the price is statistically linked to that estimate.
Mainliner	A company whose main line of business is auctions over the Internet
Monopoly	The control of all or most of a business activity by a single entity, so that other organizations cannot easily compete with it.
Monopsony	A situation in which there is only one buyer for a particular commodity or service.
Moral Hazard	Moral hazard is the element of risk undertaken by the winning bidder on successful completion of an auction e.g. mineral extraction rights, or publishing rights. When a consumer purchases a product or service, she incurs the risk that the product will not provide the value expected.
Multiple Unit Auction	An auction where more than one item is offered for bidding, by any number of bidders.
Name Your Own Price or Price Discrimination	Customers make an offer to a seller or group of sellers for goods based on their estimate of the sellers’ lowest acceptable bid.
Non-cooperative Behavior	Bidders act non-cooperatively when they do not coordinate their bids.
Oligopoly	Control of a commodity or service in a given market by a small number of companies or suppliers.
Oligopsony	Control of the purchase of a commodity or service in a given market by a small number of buyers.
Open Bid Auction	An open bid auction is one where the bids by the various bidders are known by all the participants.
Optimal Auction	The selling mechanism that produces the best possible revenue for the seller.
Oral Auction	The auction equivalent of the ascending price auction.
Other (category of good)	The “other” category contains everything from airplanes to horses to adult materials to heavy construction equipment.
Other (company)	A company whose main line of business is something completely different from the other categories specified (such as selling maps).
Partially Resolved Uncertainty	As the seller releases information about an item for auction, he or she reduces the level of uncertainty about the item for the bidders.
Perfect Competition	An auction is perfectly competitive if there are a sufficient number of bidders to produce the maximum possible gain for the seller.
Price Discrimination	A system whereby the bidders are not symmetric and the seller awards the item not just on the price bid, but also on some other factor e.g. domestic over foreign suppliers.
Private Value Case	An auction in which objects are acquired for personal consumption, where there is no primary motive to resell the object, and the bidder is willing to pay up to a certain maximum independent of the valuations of rival bidders.
Quick Win Auction	A seller can enter her product into a quick win auction by specifying a minimum price that he will accept. When a buyer agrees to pay that amount the item is immediately sold i.e. a quick win.
Regular Case	When both a reserve price and an entry fee are used, a bidder will participate in the auction if and only if his expected profit from bidding (given the reserve price) exceeds some minimum level called the screening level. The most tractable case for analysis arises when the “only if” can be replaced by “if and only if”, that is, when every bidder whose value estimates exceed the screening level participates: we call that case the REGULAR case. The case of a zero entry fee is always regular.
Report	From an analytical viewpoint, auctions can sometimes be better analyzed by viewing them as “revelation games” in which each bidder chooses a report, instead of a bid.
Resale Value	The revenue generated by the bidder on selling the auctioned item in secondary markets.
Reserve Price	The price set by the seller, below which he will not sell the offered item(s).
Revenue	The amount that the seller receives on successfully auctioning an item(s).
Revenue Equivalence Theorem	Under the assumption of private value, all four basic auction types can be shown to yield the same expected price and revenue to the seller when the bidders are risk neutral and symmetric.
Reverse Auction	Buyer driven auction that can take on many of the above characteristics. Sellers, rather than buyers, compete to offer the lowest price for goods.
RFQ	Request For Quotation
Risk	For an agent in an auction, e.g. first-price sealed bid auction, if he loses he gets nothing, while if he wins he obtains a positive profit. Thus he is facing risk. By marginally increasing his bid, he lowers his profit if he wins, but increases the probability of this event.
Risk Aversion	Auctions generally confront bidders with risk. Typically, a bidder obtains nothing and pays nothing if he loses, and earns positive rents if he wins. Thus if bidders are risk averse, the extent of their aversion to risk will influence their bidding behavior.
Risk Neutral	For the models presented the seller is generally assumed to be risk neutral, as he only wishes to maximize his earnings.
Risk Premium	The risk premium is the information demanded by bidders to offset the risk they undertake by participating in the auction.
Royalties	The payment paid by the winner, based on the value that he extracts from the auctioned item e.g. Publishing rights, mineral extraction rights.
Screening Level	When both a reserve price and an entry fee are used, a bidder will participate in the auction if and only if his expected profit from bidding (given the reserve price) exceeds some minimum level called the screening level.
Sealed Bid Auction	A sealed bid auction is one in which the bidders make one bid, that is then “sealed” and entered with the seller, who opens the received bids to determine the winning bid. Only the seller of the item(s) knows all the amounts bid.
Sealed Double Auction	Buyers and sellers simultaneously submit secret sealed offers to buy and sell. Auctioneer opens offers and clears market. The auction repeats several times to give a continuous market price.
Second Price Auction	This type of auction is also a sealed bid auction. When a single item is auctioned, the highest bidder is awarded the item at a price equal to the highest unsuccessful bid (thus the name, second price).
Second Price Sealed Bid Auction	Similar to first price sealed bid auction; winner is highest bidder. However, winner only pays amount of second highest bid.
Secondary Markets	Markets where the winning bidder can sell the item auctioned in order to achieve a profit.
Seller’s Perspective	The perspective of the seller with regard to the auction system. This could refer to expected yield, payoff, information, or a number of areas.
Shading Bids	A process whereby bidders will place bids below the own valuation in order to approach the market consensus.
Sideliner	A company whose main line of business is running auctions, but NOT over the Internet
Single Unit Auction	An auction where only one item is offered for bidding, by any number of bidders.
Symmetric Bidders	The bidders are symmetric when they use the same distribution function to estimate their valuations, implying that bidders cannot discern differences among their competitors.
True Valuation	The true market value of the item as opposed to the price actually paid in the auction system.
Uniform Auction	This is the multiple unit extension of the second price, sealed bid auction. It is referred to as a uniform price auction, because all winning bidders receive the auctioned items at the same price.
Winner’s Curse	The highest bidder wins the auction but loses by decreasing his or her expected profit when all the other participants appear to be estimating a lower market value.
Winner’s Return	The winner’s return is the financial return received after completing an auction with respect to extracting value from the item after auction, whether it is mineral extraction rights or publishing rights.
Yankee Auction	A Yankee Auction is a variation of the Dutch Auction where successful bidders pay what they bid as opposed to paying the price determined by the lowest qualified bidder (as in a Dutch Auction).
Yield	The revenue generated for the seller by the sale of an item(s) in the auction format selected.