Auction - Term Overview

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An auction is a sale procedure where the interested parties compete with each other to be awarded the good or service to be auctioned.

An auction is organized through a set of rules that determine the way in which the applicants or buyers interact with each other in order to acquire the auctioned product.

Usually, during the auction, the claimants offer sums of money that are compared to each other to later determine who will be the winner. All of the above, in accordance with previously established rules and known to all.

Auctions are an alternative to markets to determine an equilibrium price for a good or service.

Objective of the auction

Generally, the objective of the auction is to maximize the profits or profits from the sale by inducing buyers to reveal their valuation of the good or service to be auctioned. This is private (unobservable) information and there are often no incentives to disclose it.

Consumers typically don't state how much they are willing to pay for merchandise in the hope that they will be able to pay a lower price.

Auction theory

The so-called "auction theory" is a branch of game theory that is dedicated to studying auctions as a form of strategic interaction between its participants.

Some of the topics studied in this matter are the incentives faced by those who participate in the auctions, the optimal strategies for each auction design, the expected results of the auction and the degree of efficiency that is achieved with them.

Auction theory is a study that allows not only to understand the results of auctions, but also to achieve an optimal design in accordance with the objectives pursued.

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