Sealed Bid Auction - Explained
What is a Sealed Bid Auction?
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Table of ContentsWhat is a Sealed Bid Auction?How does a Sealed Bid Auction Work? Sealed Bid Auctions in Real EstateAcademic Research on a Sealed-Bid Auction
What is a Sealed Bid Auction?
Sealed bid auction refers to an auction where all bidders submit bids to the auctioneer simultaneously, without knowledge of what the other has proposed for the item in question. In this type of bid auction, the highest proposal is mostly considered for the winning position.
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How does a Sealed Bid Auction Work?
In this auction type, bidders get the opportunity to drop only one proposal without an option of amending it in the future. This is what makes it different from the normal auction (the English auction or the open ascending price auction), where individuals have the right to adjust their bids based on what the previous bidder has offered. In this auction, transparency is not guaranteed, as the auctioneer is the only person who knows what each individual is offering, unlike the open ascending price auction where bids are offered in an open hall, and all parties in the room know what a person is offering. A typical use of this type of auction is in the issuance of government treasuries or contracts.
Sealed Bid Auctions in Real Estate
In selling off real estate properties, owners might choose to make use of the sealed bid auction system. The seller would need to post public advertisements stating the decline for the bid and the requirements for submitting a proposal. To prevent disappointments, it is generally advisable that the seller knows the worth of his property. If a similar estate structure is in his demand, the seller will certainly receive numerous offers and subsequently rake in big returns. However, the opposite is likely the case in most situations, as sealed-bid auctions tend to receive a fewer number of bidders than English auctions. Most sellers have learned some mistakes associated with sealed-bid auctions the hard way, and they wouldn't want it to repeat itself. In creating an advert, the seller is generally careful about releasing too much information which might reduce his chance of getting high bids. Also, sellers tend to eradicate the idea of minimum bids, as this would make more bidders draw proposals close to the minimum amount. This is because bidders are careful not to overspend in order to win an auction. In a sealed bid auction, all bidders know that each one of them shares the risk of overbidding and might decide to keep it low, but not as low as what they suspect the other person might be bidding. Contrary to our initial definition, sellers sometimes might not pick the higher bidder, but rather will decide to pick the best bidders and conduct interviews with them. This mostly happens if the seller feels that there is a higher chance of increased rate if connection personally with the bidder. Also, in choosing the best bidders, the seller can deviate from the price offered to terms or the requirements by each bidder.
Academic Research on a Sealed-Bid Auction