An auction is the process of buying and selling in which the auctioneer declares the rules before the auction begins and all participants accept them. The auction is posted through the filing of bids and it results in the sale of an asset to the best legitimate bidder (the value of a good is defined through an auction process).
Thus, the auction process facilitates the determination of a system of resource allocation and of a price that must correspond to the benefit of enjoying a good, and /or of receiving a service, and /or of acquiring a right. Different types of goods, contracts, licenses, and fees are covered through different auction processes.
Auction procedures are performed daily by Monetary Authorities that propose periodical auctions to sell securities and debt certificates; by regulated markets (stock exchanges) that operate through a mechanism defined as "double auction" (in which reaching the price that allows the exchange competition is allowed both on the ask and on the bid side); by public institutions that use the auction mechanism to award exclusive contracts in the exploitation of common resources and rights with the purpose of allowing more agents to compete in order to secure access to one or more scarce resources, thus achieving an efficient allocation.
1. Competitive bidding: it is an auction based on the competition of participants to win the subject of the auction by proposing the greatest upside or the minimal downside. As part of a competitive bidding, it is possible to identify different typologies of auctions: according to participants (the auction can be open to all or only to persons with special requirements) or based on procedures (i.e. the English auction which is characterised by the auctioneer who proposes a low base as a start for the subject of the auction, thus to achieve the subject it is required to increase the bid price with minimum increments; the Dutch auction which is based on lowering the bid; auctions based on written bids in sealed envelopes; and outcry auctions with open bids observable by all participants).
2. Dutch Auction: according to this methodology, the auctioneer does not propose an initial base to obtain the asset, but the base is set high and it is reduced until an offer matching the price requested by the auctioneer is made.
3. Outcry auction: it is the typical modality of sale of securities that was carried out in the stock exchanges before the introduction of electronic trading systems. In the stock exchanges, during outcry auctions, securities were sold and bought by shouting the name, price and quantity of the title to be sold and/or bought.
4. Foreclosure Auction: it is carried out after the bankruptcy of a company in order to satisfy the creditors of the bankrupt. A court orders this type of auction.
5. Judiciary Auction: it takes place when a court orders it and it is carried out through a mandatory sale of some assets in order to satisfy the creditors. It can be an English-type auction or an auction with tenders in sealed envelopes.
Parisio L. (1999). "Meccanismi d'asta". Roma, Carocci.
Editor: Alberto Maria SORRENTINO
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