Absolute Auction – Definition

Cite this article as:"Absolute Auction – Definition," in The Business Professor, updated February 13, 2019, last accessed October 28, 2020, https://thebusinessprofessor.com/lesson/absolute-auction-definition/.


Absolute Auction Definition

An absolute auction is a type of auction sale when the purchase amount is neither set (reserve price) nor negotiated. Instead, the purchase amount comes through competitive, open bidding, with the highest price as the winning bid. The absolute auction is a “classic” auction when regardless of the cost of goods, the items sell at the highest bid price, which means the absolute price is $0.

A Little More on What is an Absolute Auction

When there is a direct demand for sold goods, absolute auctions are held in many places, such as direct auctions, online markets, such as eBay.com, foreclosure markets, and so forth. Let’s say two business owners wanted to end their business. They want to get rid of all their merchandise as quickly as possible by holding an absolute auction. Each item bid starts at $0, and the highest bid gets the product. An alternative to that example is a closed estimate auction or Dutch auction, which allows people to submit private offers after a high initial price gets set. The auction continues until the auctioneer reaches the lowered price a bidder is willing to pay for the item.

References for Absolute Auction


Academic Research on Absolute Auction

  • Using the unmatched count technique (UCT) to estimate base rates for sensitive behavior, Dalton, D. R., Wimbush, J. C., & Daily, C. M. (1994), Personnel Psychology, 47(4), 817-829. Through empirical analysis, it’s shown how UCT or unmatched count technique can establish the likelihood of various behaviors occurring, which are prohibited for professional auctioneers. Daily, Dalton, and Wimbush discuss several advantages of UCT, which include making it easier to disclose to subjects transparently, while being utterly anonymous to them, giving the researcher “legal immunity,” and foremost, providing a more precise assessment for the probability of specific sensitive behavior to occur.
  • Auctions vs. negotiations, Bulow, J., & Klemperer, P. (1994). (No. w4608). National Bureau of Economic Research. Between a negotiation with a tiny pool of bidders and a public auction, which one is the better choice for the lucrative selling of a company? Including regular assumptions, Bulow and Klemperer believe regardless of the seller’s relinquishing of their negotiating power — leaving them without the capacity for removal of the company from a sale — the public auction is the optimal choice to provide the most profitability. However, conditionally, the auction must draw at least one additional bidder. Even when the common values and independent private values models are evaluated, the public auction dominates “optimally structured negotiation.” Comparatively, the assessment reveals more value comes from an added contest with bidding than the relatively minor value of being an expert negotiator.
  • Experimental evidence on the endogenous entry of bidders in internet auctions, Reiley, D. H. (2005),  In Experimental Business Research (pp. 103-121). Springer, Boston, MA. Reiley examines the reasonable predictions of the latest propositions regarding auctions accepting bidders through an endogenous or internal entry. There was a field experiment that included collectible trading card online auctions with sealed-bids, which revealed various results when there was an influence on reserve prices in the auctions as an experimentally treated variable. The first observation was that bidders taking part made endogenous decisions and felt they had pricey bid submissions. Reiley also observed how more bidders used a mixed bidding strategy based on anticipation of all other bids, as opposed to one resolving more on deterministic or leaving to chance. The paper also looks at how keeping the reserve price at zero proved more profitable.
  • A semantic web service environment for B2B and B2C auction applications within extended and virtual enterprises, Jagdev, H., Vasiliu, L., Browne, J., & Zaremba, M. (2008), Computers in Industry, 59(8), 786-797. The web services now do not have the semantic structure to keep up with requirements for forming and running the rising supply chains, and virtual and extended enterprises for business operation via the internet. Goals for the integration of technology for semantic web services is to allow for the capacity of various systems to process and understand independent behavior structures and data designs of independent systems. The aim is to alleviate the need for human involvement in integration processes by defining underlying data, behavior, and aspects of specific systems. Browne, Vasiliu, and Zaremba present a “unique bid auction application” specifically for the automation within virtual and extended enterprises. They explain the benefits of having semantic web services technology with the ability to support creations of such applications.
  • Computerized double-auction markets: some initial experimental results, Williams, A. W. (1980), Journal of business, 235-258. The Securities and Exchange Commission received a directive from Congress in 1975 to start a progression towards establishing a national system for trading stock. In 1980, as an effort to follow the congressional order, the Cincinnati Stock Exchange began a project, which was the first to test a fully computer-operated way of trading. Williams gives a design report and presents the results of various lab experiments. The analysis looks at the behavior for computerized automation of “double-auction” markets with no contact or exchange between the buyer and seller.
  • A test of Claret price formulation in auction markets, Wanhill, S. R. (1995), International Journal of Wine Marketing, 7(1), 17-22. Wanhill investigates the factors which contributed to the final auction price of a vintage Château Léoville‐Barton collection of wines from 1981-90 at a 1994 auction held at Christie’s in South Kensington of West London. The predictions of the auction‘s  “sold” price were based on Christie’s guide prices and vintage ratings that were given by three prominent wine writers. Upon examination, the guide prices of the auctioneer had more influence on the different price fluctuation than did the writers’ vintage ratings, although they did prove to be significant.
  • System and method for providing an auction of real estate, Mozley, M., Pelfrey, B., Pelfrey, J., Ames, D., Fisher, T., & Reed, C. (2011). U.S. Patent No. 7,987,117. Washington, DC: U.S. Patent and Trademark Office. Ames, Fisher, Mozley, Pelfrey, B. and J., and Reed present an innovative real estate auction system and facilitating mechanism. The system has a server device that connects to a network dedicated to real estate property including property postings, subsequent information about the property, and the ability for at least one bidder to access the auction to place a bid using a remotely operated device for a specific period.
  • A Global Comparative Study of Online Auction Markets., Ho, J. K. (2004, December), In ICEB (pp. 239-244). Online auctions have done more for online businesses than merely recondition traditional operation processes through the internet. Using data from operations only and no foreknowledge of accounting or knowledge of specific auctions beyond universal awareness, the results of an international study presents a graphical analysis of four markets with data from the original platform leader in online auctions, eBay.com.
  • Applications of flexible pricing in business-to-business electronic commerce, Bichler, M., Kalagnanam, J., Katircioglu, K., King, A. J., Lawrence, R. D., Lee, H. S., … & Lu, Y. (2002), IBM Systems Journal, 41(2), 287-302. Because of the increasing forcefulness of business-to-business e-commerce, there has been a displacement of fixed pricing with flexible pricing., which includes differential pricing, when buyers get different prices based on expected costs and also dynamic-pricing through auctions. In this paper, Bichler, Kalagnanam, Katircioglu, King, Lawrence, Lee, and Lu investigate flexible pricing within the framework of supply chains, negotiation techniques for acquisition and assessment of elaborate bids. The paper also discusses application services and pricing strategies dealing with requests for quotes and reverse logistics, which handles the operational reuse of materials or recovering goods for disposal.
  • Competing with IT: The role of shared IT-business understanding, Ray, G., Muhanna, W. A., & Barney, J. B. (2007). Communications of the ACM, 50(12), 87-91. This study shows how IT resources can yield unbalanced profitability and usefulness that’s more favorable for one business than another.
  • Customer expectations in online auction environments: An exploratory study of customer feedback and risk, Finch, B. J. (2007), Journal of Operations Management, 25(5), 985-997. It’s well known the significance of understanding a customer’s needs and customers taking part in conventional commerce always have expectations for the products they purchase and the service they receive. With e-commerce and so many transactions occurring online, customers no longer have the same relational dynamic with products, services, and sellers. As a result, specific risks present themselves with these faceless transactions that aren’t present within the traditional buyer-seller relationships. In this study, Finch examines preluding or first customer relationships regarding the quality aspects of products and services using their comments about the sellers and the author looks at the customers’ exposure to risks.


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