Reviewed by Aug 27, 2020| Updated on
Introduction to Auction
An auction is a selling process where prospective buyers either openly or closely put competitive bids on goods or services. Auctions are common because buyers and sellers believe buying or selling assets in this way would get a good deal.
How Does an Auction Function?
Both bidders and sellers are aware of the bids that are submitted when performed in an open format. Bidders aren't aware of other bids when in a closed environment. Auctions may be live, or they may be run on an online platform. The asset or service in question will be sold to the party that places the highest bid in an open auction, and to the highest bidder in a closed auction.
An Important Note
Cost is not a deciding factor always when assets are sold by auction; a business that is for sale can choose a buyer who will provide its employees with the best terms.
In a case where a portion of an organization or the whole company is on sale, price is not the only factor. For example, the seller may want to retain as many jobs for its workers as possible. If a bidder fails to send the highest price but is able to give employees the best terms for continuity, the seller may choose that bidder.
An Example of An Auction
During an open auction, participants get together to bid on properties at a physical location or online sale. An interested party is aware of the competing bid amounts and proceeds to raise their bid until either the winner of the auction is announced, i.e. who submit the last highest bid within the time limit for the auction, or until they decide to drop out of the bid.
Types of auctions include livestock market auction, where farmers buy and sell cattle; car auctions; or an auction room.
Auctions are performed in a closed format in many business transactions, including the selling of company properties or a whole company, whereby interested parties send sealed bids to the vendor. Just the seller knows those bid numbers. The vendor may choose to conduct just one round of bidding, or the vendor may choose two or more bidders for an additional round of auction.