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Flower Auction Models

Different Auction Models

A number of different methods exist to auction and value goods exchanged between buyers and sellers. Below we provide a number of different auction techniques for the purpose of discussion. These auction models were adapted from Davis and Holt, Experimental Economics, Princeton University Press (1993).

The Dutch Auction
In a Dutch auction, the auctioneer lowers the offer price sequentially until a buyer agrees to pay the offer price. Often the prices areindicated by a clock, which falls over a price scale until a buyerpresses a button to stop the clock. The first buyer to do this obtains a unit at the price in effect at the time that the clock was stopped. The Dutch auction derives its name from its extensive use in wholesaleagricultural markets in Holland.
The English Auction
In the English auction, different potential buyers bid for a good orservice, sequentially increasing the offered price until only one active bidder remains. This auction technique is commonly used for the sale ofartwork and other valuable objects.
Offer Auction
An offer auction is an institution in which sellers can make offers sequentially, and buyers are able to accept any offer, but not to make any bids.
Bid Auction
A bid auction refers to the opposite case in which buyers can make bids sequentially, but sellers can only indicate that a bid is accepted.

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Other Auction Models

Clearinghouse Auction
In the clearinghouse auction, buyers submit bids and sellers submit offers. Once submitted, the bids are arrayed in descending order, from highest to lowest, while the offers are arrayed in ascending order, from lowest to highest. A price is then determined by a crossing of the bid and offer arrays. This two-sided institution eliminates the performance asymmetries associated with allowing only one side of the market to submit price quotes. It is perceived as a fair auction.
Posted-Offer Auction
In the posted-offer auction, sellers independently select a price and a maximum quantity limit. After prices and quantity limits have been selected, the prices are displayed on the blackboard or on all traders' computer screens. Then buyers are chosen randomly from a waiting mode. The first buyer selected makes purchases from sellers at their posted prices. When a buyer has purchased all desired units, another is selected randomly and is given the same opportunity. The trading period ends when all buyers have had an opportunity to shop or when all sellers are out of stock. Then earnings are calculated, and a new period typically follows.
Posted Bid Auction
Reversing the roles of sellers and buyers in a posted offer (i.e., allowing buyers to post bids and subsequently selecting sellers in random order to make sales decisions) implements the posted-bid auction.
Discriminative Auction
In a discriminative auction buyers submit posted bids to a singleseller, who offers a fixed number of units, N, to the highest bidders at their price. For example, if two units are offered for sale and four bidders submit bids of 15, 17, 10, and 9, then the first two bidders obtain the units at prices of 15 and 17 respectively. This auction is called discriminative since winners must pay their own bid prices, andin this sense the seller engages in "price discrimination".
First-Price, Sealed-Bid Auction
When there is only one unit or "prize", the high bidder in the discriminative auction wins the auction and purchases it at his/her bid price, which is the highest, or "first" price. Therefore, a discriminative auction with a single unit is sometimes called a first-price, sealed-bid auction.
Competitive Sealed-Bid Auction
In contrast to the discriminative case, it is possible to design a mechanism for selling multiple units in which all of the N highest (winning) bidders pay a uniform price. When the uniform price is specified to be the highest rejected bid, the institution is known as a competitive auction. In the previous example, with two units and bids of 15, 17, 10, and 9, the first two bidders obtain the units, but they pay the same (third) price, 10. Since all winning bidders pay the same market-clearing price, this institution can create an impression of fairness.
Second-Price, Sealed-Bid Auction
A second-price auction is a special case of a competitive sealed-bid auction with only one prize; the highest rejected bid is the second highest price, which is what the winning bidder must pay.
Decentralized Negotiation
In a decentralized negotiation institution, each seller (buyer) is allowed to roam freely around the room and negotiate contracts. Each seller (buyer) had one unit that could be sold (purchased) with a cost (reservation value) listed on a card. After a contract is completed, the buyer and seller report the price to a central point, and the price is usually written on the blackboard at the time it is reported. The most striking result of the decentralized negotiation is the tendency for quantity exchanged to be too high. While centralized bid and offer information would tend to eliminate trades involving extra-marginal units, the absence of information on the bid-ask spread in decentralized markets would facilitate the consummation of more inefficient contracts.
Double Auction
Under double auction rules, any buyer who makes a bid must raise his/her hand and be recognized. The bid is then publicly announced to the market. Sellers' offers are also publicly announced. All bids and offers are written on the blackboard as they are made. Only the most attractive bid or offer has "standing" or can be accepted. Any buyer is free at any time to accept a standing offer, and any seller can accept a standing bid. It is common practice to add an "improvement rule"; that is, that a new bid be greater than the standing bid and that a new offer be lower than the standing offer. This is a double auction in a sense that bids rise and offers fall at the same time.

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