The Economics of Auctions
The Four Classic Auction Formats
English, Dutch, first-price sealed-bid and second-price sealed-bid auctions each set winners and payments differently.
Different rules, different behaviour.
English
Prices rise until only one bidder remains, who pays the last bid.
Dutch
The price starts high and falls until someone accepts, as in flower auctions.
First-price sealed-bid
Each bidder submits one secret bid; the highest wins and pays their bid.
Second-price
The highest bidder wins but pays the second-highest bid, called a Vickrey auction.
A flower auction
In the Netherlands, a clock shows a falling price until a buyer presses a button.
Assuming all auctions work like English ones
Formats differ.
Key takeaways
- English auctions ascend.
- Dutch auctions descend.
- First-price pays your bid.
- Second-price pays the runner-up's bid.
No recording for this one yet - EconReader can read it aloud for you.