Editing Auction (section)

==Bidding strategy==
{{See also|Category:Bidding strategy}}

===By the bidders===
[[File:Vase meiping Musée Guimet 2418.jpg|thumb|An 18th century Chinese ''meiping'' porcelain vase. [[Porcelain]] has long been a staple at [[History of art auction sales|art sales]]. In 2005, a 14th-century Chinese porcelain piece was sold by [[Christie's]] for [[Pound sterling|£]]16&nbsp;million, or US[[United States dollar|$]]28&nbsp;million. It set a world auction record for any ceramic work of art.<ref>{{citation|url= https://www.nytimes.com/2005/07/13/arts/13iht-web.melik.html|title= Chinese Jar Sets Record for Asian Art|access-date= 2008-06-19|last1= Melikian|first1= Souren |author-link=Souren Melikian|date= 2005-07-26|work= The New York Times}}</ref>]]
[[Michael Katehakis|Katehakis]] and Puranam provided the first model<ref name="dynamic">{{Citation| last1 = Katehakis| first1 = Michael | last2 =  Puranam| first2 = Kartikeya S. | title = On optimal bidding in sequential procurement auctions| journal = Operations Research Letters | volume = 40| issue = 4 | pages =  244–249 | date = July 2012| doi = 10.1016/j.orl.2012.03.012}}</ref>
for the problem of optimal bidding for a firm that in each period procures items to meet a random demand by participating in a finite sequence of auctions. In this model an item valuation derives from the sale of the acquired items via their demand distribution, sale price, acquisition cost, salvage value and lost sales. They established monotonicity properties for the value function and the optimal dynamic bid policy. They also provided a model<ref name="dynamic finite">{{Citation
| last1 = Katehakis
| first1 = Michael
| last2 =  Puranam
| first2 = Kartikeya S.
| title = On bidding for a fixed number of items in a sequence of auctions
| journal = European Journal of Operational Research
| volume = 222
| issue = 1
| pages =  76–84
| date = October 2012
| doi =10.1016/j.ejor.2012.03.050
}}</ref>
for the case in which the buyer must acquire a fixed number of items either at a fixed buy-it-now price in the open market or by participating in a sequence of auctions. The objective of the buyer is to minimize their expected total cost for acquiring the fixed number of items.

During an auction, the seller might possess more comprehensive knowledge regarding the item on offer compared to the buyer, creating an information asymmetry.<ref>{{Cite journal |last=Akerlof |first=George A. |date=1970-08-01 |title=The Market for "Lemons": Quality Uncertainty and the Market Mechanism |url=https://academic.oup.com/qje/article-lookup/doi/10.2307/1879431 |journal=The Quarterly Journal of Economics |volume=84 |issue=3 |pages=488–500 |doi=10.2307/1879431|jstor=1879431 |s2cid=6738765 }}</ref> This lack of information could lead the bidder to overvalue the item and consequently pay a higher price, resulting in the [[winner's curse]].<ref>{{Cite journal |last1=Milgrom |first1=Paul R. |last2=Weber |first2=Robert J. |date=1982 |title=A Theory of Auctions and Competitive Bidding |url=https://www.jstor.org/stable/1911865 |journal=Econometrica |volume=50 |issue=5 |pages=1089–1122 |doi=10.2307/1911865 |jstor=1911865 |issn=0012-9682|hdl=10419/220807 |hdl-access=free }}</ref> Nevertheless, bidders may also choose to employ [[bid shading]] as a strategy to circumvent this predicament. [[Bid shading]] is placing a bid which is below the bidder's actual value for the item. Such a strategy risks losing the auction but has the possibility of winning at a low price. Bid shading can also be a strategy to avoid the [[winner's curse]]. In either case, the allocation of resources may be inefficient, as the product will not ultimately be acquired by the individual who values it the most. Instead, it will go to the person who either overvalues it the most or effectively employs [[bid shading]].<ref>{{Cite journal |last=Thaler |first=Richard H |date=1988-02-01 |title=Anomalies: The Winner's Curse |journal=Journal of Economic Perspectives |language=en |volume=2 |issue=1 |pages=191–202 |doi=10.1257/jep.2.1.191 |issn=0895-3309|doi-access=free }}</ref>

[[Auction cancellation hunter]]s bid minimal amounts on multiple auctions and expect them to be cancelled. If an auction is cancelled by the seller, they will claim for damages in the amount of the difference between the maximum bid at the time of the auction cancellation and the price of a replacement purchase of the offered item in the auction, when the market is in equilibrium, even if the seller has not sold any of the items, the shadow of bidding still exists. This is the self-protection instinct of the auction market. In order to make this transaction fairer.<ref>{{cite journal |last1=Zeithammer |first1=Robert |title=Research Note—Strategic Bid-Shading and Sequential Auctioning with Learning from Past Prices |journal=Management Science |date=2007 |volume=53 |issue=9 |pages=iv-1519 |doi=10.1287/mnsc.1070.0691 }}</ref> [[Auction sniping]] is the practice of placing a bid at the last moment of the auction. According to the analysis of auction data from eBay, in general, experienced bidders are more likely to snipe in auctions, and those who snipe in auctions are more likely to win.<ref>{{cite journal |last1=Gonul |first1=Fusun |last2=Leszczyc |first2=Peter |title=Snipe bidding behaviour in eBay auctions |journal=International Journal of Electronic Marketing and Retailing |date=2011 |volume=4 |pages=16–29 |doi=10.1504/IJEMR.2011.039894}}</ref> [[Jump bidding]] is an aggressive tactic of increasing every bid by high amounts. [[Calor licitantis]] is also known as "auction fever" and describes the irrational behavior of bidders at auctions. [[Suicide bidding]] is practice in reverse auctions, whereby a bidder submits a bid, which ends up in a loss for this bidder.<ref>{{cite journal |last1=Malmendier |first1=Ulrike |last2=Lee |first2=Young Han |title=The Bidder's Curse |journal=The American Economic Review |date=2011 |volume=101 |issue=2 |pages=749–787 |doi=10.1257/aer.101.2.749 |jstor=29783689 |url=https://www.zora.uzh.ch/id/eprint/235743/1/malmendier_lee_2011_the_bidder_s_curse.pdf }}</ref>

====Collusion====<!--[[Ring]] links here-->
Whenever bidders at an auction are aware of the identity of the other bidders there is a risk that they will form a "ring" or "pool" and thus manipulate the auction result, a practice known as [[collusion]] or more specially [[bid-rigging]].<ref>{{cite journal |last1=Beckmann |first1=Michael |title=Art Auctions and Bidding Rings: Empirical Evidence from German Auction Data |journal=Journal of Cultural Economics |date=May 2004 |volume=28 |issue=2 |pages=125–141 |doi=10.1023/B:JCEC.0000019483.38761.63|s2cid=154343127 }}</ref><ref>{{cite journal |last1=Marshall |first1=Robert C. |last2=Marx |first2=Leslie M. |title=Bidder collusion |journal=Journal of Economic Theory |date=March 2007 |volume=133 |issue=1 |pages=374–402 |doi=10.1016/j.jet.2005.12.004}}</ref><ref>{{cite journal |last1=Porter |first1=Robert H. |last2=Zona |first2=J. Douglas |title=Detection of Bid Rigging in Procurement Auctions |journal=Journal of Political Economy |date=1993-06-01 |volume=101 |issue=3 |pages=518–538 |doi=10.1086/261885 |s2cid=153700986 |url=https://www.journals.uchicago.edu/doi/abs/10.1086/261885 |access-date=22 May 2021 |issn=0022-3808}}</ref> By agreeing to bid only against outsiders, never against members of the "ring", competition becomes weaker, which may dramatically affect the final price level. After the end of the official auction, an unofficial auction may take place among the "ring" members. The difference in price between the two auctions could then be split among the members.  This form of a ring was used as a central plot device in the opening episode of the 1979 British television series ''The House of Caradus'', 'For Love or Money', uncovered by Helena Caradus on her return from Paris.

In the [[UK]], this auction practice is illegal.<ref>{{cite web |title=Changes in the law make auction rings easier to prosecute, but is the regulatory framework still fit for purpose? |url=https://www.artatlaw.com/blogpost/changes-in-the-law-make-auction-rings-easier-to-prosecute-but-is-the-regulatory-framework-still-fit-for-purpose |website=Art@Law |access-date=11 October 2020 |date=26 February 2014}}</ref> It jeopardizes competition on the auction and can demotivate other bidders from participating. It robs the seller of the true value of their good and reduces the auctioneer's commission.

Beyond explicit collusion, a [[tacit collusion|tacit coordination]] of bidders to keep bids low is at least theoretically possible. In case of [[spectrum auction]]s, the [[Federal Communications Commission]] (FCC) experimented with precautions restricting visibility of bids, limiting the number of bids, click-box bidding, and anonymous bidding in order to prevent bidders from [[signalling (economics)|signalling]] bidding information by embedding it into digits of the bids.<ref name=tacitfcc>{{cite journal |last1=Bajari |first1=Patrick |last2=Yeo |first2=Jungwon |title=Auction design and tacit collusion in FCC spectrum auctions |journal=Information Economics and Policy |date=1 June 2009 |volume=21 |issue=2 |pages=90–100 |doi=10.1016/j.infoecopol.2009.04.001 |url= http://www.nber.org/papers/w14441.pdf|language=en |issn=0167-6245}}</ref> Actions within the auction mechanism serve as a communication channel for collusive behavior, once no other channels are legal.

===By the auctioneer===
====Chandelier or rafter bidding====
This is the practice, especially by high-end art auctioneers,<ref>{{cite web|last1=Grant|first1=Daniel|title=Legislators Seek to Stop 'Chandelier Bidding' at Auction|url=http://www.artnews.com/2007/09/04/legislators-seek-to-stop-chandelier-bidding-at-auction/|website=ArtNews|date=4 September 2007|access-date=27 January 2017}}</ref> of raising false bids at crucial times in the bidding in order to create the appearance of greater demand or to extend bidding momentum for a work on offer. To call out these nonexistent bids auctioneers might fix their gaze at a point in the auction room that is difficult for the audience to pin down.<ref name="as-20121108"/> The practice is frowned upon in the industry.<ref name="as-20121108"/> In the United States, chandelier bidding is not illegal. In fact, an auctioneer may bid up the price of an item to the reserve price, which is a threshold below which the consignor may refuse to sell the item.  However, the auction house is required to disclose this information.

In the [[United Kingdom]] this practice is legal on property auctions up to but not including the reserve price, and is also known as off-the-wall bidding.<ref>{{cite web |url=http://ukauctions.org.uk/articles-videos/help-and-advice/what-is-bidding-off-the-wall/ |title=What is bidding off the wall? &#124; UK Property Auctions |publisher=Ukauctions.org.uk |access-date=2012-12-26 |archive-url=https://web.archive.org/web/20120222061957/http://ukauctions.org.uk/articles-videos/help-and-advice/what-is-bidding-off-the-wall/ |archive-date=2012-02-22 }}</ref>

====Collusion involving auctioneer====
A ring can also be used to increase the price of an auction lot, in which the owner of the object being auctioned may increase competition by taking part in the bidding themself, but drop out of the bidding just before the final bid. This form of a ring was used as a central plot device in an episode of the British television series ''[[Lovejoy]]'' (series 4, episode 3), in which the price of a watercolour by the (fictional) Jessie Webb is inflated so that others by the same artist could be sold for more than their purchase price. In an English auction, a dummy bid is a bid made by a dummy bidder acting in collusion with the auctioneer or vendor, designed to deceive genuine bidders into paying more. In a first-price auction, a dummy bid is an unfavourable bid designed so as not to become the winning bid. (The bidder does not want to win this auction, but they want to make sure to be invited to the next auction).

In Britain and many other countries, rings and other forms of bidding on one's own object are illegal. In Australia, a dummy bid or also a [[Shill#Auctions|shill]] is a criminal offence, but a vendor bid or a co-owner bid below the [[reserve price]] is permitted if clearly declared as such by the auctioneer. These are all official legal terms in Australia but may have other meanings elsewhere. A co-owner is one of two or several owners (who disagree among themselves). In Sweden and many other countries, there are no legal restrictions, but it will severely hurt the reputation of an auction house that knowingly permits any other bids except genuine bids. If the reserve is not reached this should be clearly declared. In South Africa, auctioneers can use their staff or any bidder to raise the price as long as it is disclosed before the auction sale. [[Rael Levitt]]'s companies ''The Auction Alliance'' controversy focused on vendor bidding and led to its downfall in 2012.<ref>{{cite news |title=Auction Alliance to probe claims |url=https://www.iol.co.za/news/south-africa/gauteng/auction-alliance-to-probe-claims-1240529 |access-date=13 March 2021 |work=www.iol.co.za |language=en}}</ref><ref>{{cite news |website=eProperty News |title=Billionaire loses legal battle against High Street Auctions over phantom bidders – eProperty News |url=https://eprop.co.za/commercial-property-news/item/18740-billionaire-loses-legal-battle-against-high-street-auctions-over-phantom-bidders |access-date=13 March 2021 |language=en-gb}}</ref>

====Suggested opening bid (SOB)====

There will usually be an estimate of what price the lot will fetch. In an ascending open auction, it is considered important to get at least a 50-percent increase in the bids from start to finish. To accomplish this, the auctioneer must start the auction by announcing a suggested opening bid (SOB) that is low enough to be immediately accepted by one of the bidders.<ref>{{cite book |last1=Ma |first1=Mingfan |last2=Gao |first2=Jun |last3=Lu |first3=Ning |last4=Shi |first4=Wenbo |chapter=A Privacy-Preserving Online Reverse Multi-attributes Auction Scheme Based on Degree-Matching |title=Cloud Computing and Security |series=Lecture Notes in Computer Science |date=2016 |volume=10039 |pages=432–442 |doi=10.1007/978-3-319-48671-0_38 |chapter-url=|publisher=Springer International Publishing |isbn=978-3-319-48670-3 |language=en}}</ref> Once there is an opening bid, there will quickly be several other, higher bids submitted. Experienced auctioneers will often select an SOB that is about 45 percent of the (lowest) estimate. Thus there is a certain margin of safety to ensure that there will indeed be a lively auction with many bids submitted. Several observations indicate that the lower the SOB, the higher the final winning bid. This is due to the increase in the number of bidders attracted by the low SOB.

A [[chi-squared distribution]] shows many low bids but few high bids. Bids "show up together"; without several low bids there will not be any high bids.

Another approach to choosing a SOB: The auctioneer may achieve good success by asking the expected final sales price for the item, as this method suggests to the potential buyers the item's particular value. For instance, an auctioneer is about to sell a $1,000 car at a sale. Instead of asking $100, hoping to entice wide interest, the auctioneer may suggest an opening bid of $1,000; although the first bidder may begin bidding at a mere $100, the final bid may more likely approach $1,000.