Online Auctions

An auction is a market institution with a set of rules explicitly determining resource allocation and price on the basis of bids from the market participants (McAfee & McMillan, 1987).

Pinker et al. (2003) mentioned that the transaction mechanisms we are practicing and familiar with are posted price, negotiated price, and auctions. The way people conduct auction, according to prior researcher’s (Cassady, 1967) belief, is because that some commodities have no standard value. Cramton (1998) stated explicitly as that auctions are fundamentally about allocation and pricing scarce resources in the responses to uncertainty. McAfee & McMillan’s (1987) statement seemed to converge on the same viewpoint of Cramton’s (1998). McAfee & McMillan (1987) proposed that when forming the price, there is considerable uncertainty (Arrow, 1959).

In the work of McAfee’s (1987), his candid statement pointed out that information asymmetry generated the uncertainty no matter this information asymmetry is in the side of buyer or the seller. However, such problem is solved with the birth of Internet.

Efficient information patronized by Internet reduces the level of information asymmetry.What are the types of auctions which are in use? McAfee & McMillan (1987) thought that there should be four basic types of auctions used when items are to be transacted. Those four types are (a) English auction (known as oral open or ascending-bid auction), (b) Ducth (known as descending auction), (c) first-price sealed –bid auction, and (d) second-price sealed-bid auction (known as Vickrey).