Topic 7.

Auctions – a technique
of trading goods
Lectures – 2 hours

7.1 Auctions: distinct features and

history.
7.2. Typology of auctions.
7.3. Export (sale) auctions: peculiarities
and stages of conducting
7.1 Auctions: distinct features and history.
Def. An auction is a process of buying and
selling goods or services by offering them
for a bid and then selling the item to the
highest bidder.
In economic theory, auctions are commodity
markets that concentrate the demand and the
supply in a determined period of time and
place, the supply being presented as a real
consignment or as a set of documents
attesting its existence.
The main goal of the auctions
is to select the seller offering the
most favorable conditions and the
lowest price for buying auctions or
the highest price for sale auctions.

In the auction, sale of goods and

services is generally carried out by
shouting or "display".
 The distinctive features of the
auctions are:
a. are run under its own regulations;
b. diminish the importance of negotiations
which took place, usually, after the opening
of auctions and after awarding;
c. are competitive transactions - the main
competitive elements being price, technical
and functional characteristics of products,
conditions and terms of delivery and
payment;
 Distinctive features of the auctions

c. assigning the ownership of the property sold

or receiving the best bid is made by award
operation;
e. high degree of readiness, leading to the
operative end of contracts.
 History of auctions
The word "auction" is derived from
the Latin augeō which means "I
increase" or "I augment".
auctions have a long history,
having been recorded as early as
500 B.C
in Babylon auctions of women for
marriage were held annually;
During the Roman Empire,
following military victory, Roman
soldiers auctioned the slaves, often
captured as the "spoils of war“
 History of auctions
 The Romans also used auctions to liquidate the assets
of debtors whose property had been confiscated.
 Marcus Aurelius used auctions to balance the state
budget: he sold everything that was superfluous and
the budget was balanced;
 One of the most significant historical auctions
occurred in the year 193 A.D. when the entire Roman
Empire was put on the auction block by the
Praetorian Guard. On March 23 The Praetorian Guard
first killed emperor Pertinax, then offered the empire
to the highest bidder. Didius Julianus outbid everyone
else for the price of 6,250 drachmas per Guard, an act
that initiated a brief civil war. Didius was then
beheaded two months later when Septimius Severus
conquered Rome.
 History of auctions
end of the 18th century - auctions
came to be held daily in tavernas
and coffeehouses to sell art
goods.
Auction catalogs
During the American civil war
goods seized by armies were sold
at auction by the Colonel of the
division. Thus, some of today's
auctioneers in the U.S. carry the
unofficial title of "colonel".
 Auctions today
The development of the internet,
however, has led to a significant rise in the
use of auctions as auctioneers can ask bids
via the internet from a wide range of
buyers in a much wider range of
commodities than was previously
practical.
 Most Popular Online Auction Websites

eBay … 6 billion monthly page views

Site Sell … 243.9 million monthly page views
Overstock … 159.6 million monthly page views
Bid or Buy (South Africa) … 44.9 million
monthly page views
Gun Broker … 32.3 million monthly page views
Bidz … 29.2 million monthly page views
Shop Goodwill … 13.4 million monthly page
views
Swoopo … 7.9 million monthly page views
eBid … 5.7 million monthly page views
uBid … 4.5 million monthly page views .
 Goods sold at auctions
Non-standardized goods
Individual quality - No substitution
Non - fungible goods
A special place - art and antique objects.
Other goods sold through auctions
hard salable goods located in port warehouses or
consignment warehouses;
 reached its destination, but denied by the
importer as they not comply with the provisions of
contract;
goods rejected by the buyer, because of the
damage or deterioration during the transportation;
 goods that are sold, according to a court sentence,
by the beneficiary of an outstanding debt (creanta
neonorata) etc.
 There are different specialized
international auction centers:
Furs - St. Petersburg, New York, Montreal,
London, Oslo, Stolkhom;
Raw wool - London, Liverpool, Melbourne,
Sydney;
Tea - Calcutta (70% of Indian tea exported),
Colombo (70% of exports from Sri Lanka),
Nairobi, London, Deauville (France);
Tobacco - New York, Bremen;
Flowers - Amsterdam, Alsmer.
 Auctions’ statistics
In 2008, the National Auctioneers
Association reported that the gross revenue
of the auction industry for that year was
approximately $270.4 billion, with the fastest
growing sectors being agricultural,
machinery, and equipment auctions and
residential real estate auctions.
The largest sector is automo-
bile auctions with $83.1 billion
sold in 2008.
The role of auctions in the international
trade
In the USA and Canada - more than
70% of all traded furs
Denmark, Sweden and Norway –
aprox. 95% of traded furs.
70% of all tea traded on the
international market
90-95% of raw wool exported by
Australia and New Zeland.
 7.2. Typology of auctions:
1. According to organizers, are:
Auctions organized by produ-

cers or buyers;
Auctions organized by interme-

diaries, agents or brokers;

Auctions organized by specialized
companies, with the participation of banks,
chambers of commerce or trade
arbitrations.
 Typology of auctions:
2. Depending on the possibility of
participation or their judicial nature,
auctions can be:
Public (open) - number of participants is
unlimited. In an open auction participants may
repeatedly bid and are aware of each other's
previous bids;
private (closed) - are held only for specially
invited (by the organizers) firms that are
subject to prior qualification procedures. In a
closed auction buyers and/or sellers submit just once
bids (by rule sealed bids)
 Typology of auctions:
3. After the frequency of their organization:
periodic auctions;
occasional auctions.

4. Depending on the position of the

organizers in the act of sale and purchase,
are:
sale or export auctions;
buying or import auctions.
 Typology of auctions:
5. Depending on the size of the consignment
sold, auctions can be:
Wholesale auctions
Retail auctions

6. According to the nature of the transaction

object, there exist:
Auctions for raw materials or semi-finished
products;
Auctions for finished products as those for
certain works and complex objects
Auction for services
 Typology of auctions:
Auctions can differ in the number of participants:
 In a supply (or reverse) auction, m sellers offer a good that a buyer
requests
 In a demand auction, n buyers bid for a good being sold
 In a double auction n buyers bid to buy goods from m sellers

Supply auction Demand auction

Multi-unit auctions sell more than one identical item at the

same time, rather than having separate auctions for each.
7.3. Export (sale) auctions: peculiarities and
stages of carrying
 Export auctions - can be organized directly by the
manufacturer, by retailers or by the companies
specialized in such operations (Auction houses).
Examples:
Christie's, now the world's largest
auction house, was established
around 1766.
Sotheby's, now the world's second-
largest auction house, held its first
auction in 1744.
The oldest auction house in the
world is Stockholm Auction House.
It was established in Sweden in
1674. Founded by Baron Claes
Rålamb
The seller usually pays a commission to the auctioneer or auction
house based on a percentage of the final sale price.
 Specific operations for selling
auctions
I. Order to an auction house to sell a certain
good.
catalog of goods and services grouped into
specific positions, making known information
regarding the:
- Starting price
-Guarantees for participation
- Where the goods are stored and can be
checked and analyzed - "tel - quel“ rule;
 Specific operations for selling
auctions
1I. Storing goods
Large consignments are divided into smaller lots
that contain goods of uniform quality.
For ex. a lot of squirrel include 3000 skins, of
Karakul - 300-700, of samurai - 5-50 skins. Each
group is assigned a number and its
characteristics are specified in the register of
the auction.
Goods will be exposed to the auction preview. -
The examination of goods is an important
moment, because after purchasing the goods,
complaints about their quality (except for
hidden defects which could not be found) are
not received.
 Specific operations for selling auctions
the presence of goods is required, (excepting
technically complexx goods).
Auction house will accept merchandise for sale,
only if it receives a sample of the good and
documents certifying their storage place,
conditions and availability to be delivered
immediately after the transaction.
!!!Since the quality of goods can be
determined by samples, the auction
company assumes responsibility just
for the quality of the sample,
supposing that it accurately reflects
the quality of all stored goods.
 Specific operations for selling
auctions
III. Advertising the auction
IV. Participants’ registration

Each registered
participant receives a
number card, which is
used when he/she
wants to make a bid;

The auctioneer gives information to the participants about the

product: quantity, quality, price etc.
The sale contract is concluded with the bidder that before the
third auction shout or display offered the highest price.
 Specific operations for selling
auctions
V. Price formation
starting price of the auction called auction, display or
catalog price.
Methods of price establishment :
English auction

Dutch auction
Sealed first-price auction
Vikrey auction
English auction-the most common form of auction in
use today
 open ascending price auction
 The bids can be shouted by bidders or submitted
electronically with the highest current bid publicly displayed.
 The auction ends when no participant is willing to bid
further, at which point the highest bidder pays its bid.
 Alternatively, the seller can set a the 'reserve' price.
 Sometimes the auctioneer sets a minimum amount by which
the next bid must exceed the current highest bid.
 The most significant distinguishing factor of this auction
type is that the current highest bid is always available to
potential bidders.
 The English auction is commonly used for selling goods,
most prominently antiques and artwork, but also secondhand
goods and real estate.
 At least two bidders are required.
 Dutch auction
 open descending price auction.

 The winning participant pays the last announced

price.
 "Dutch auction" is also used to describe online
auctions where several identical goods are sold
simultaneously to an equal number of high bidders.
 the Dutch tulip auctions.
 In addition to cut flower sales in the Netherlands,
Dutch auctions have also been used for perishable
commodities such as fish and tobacco.
 In practice the Dutch auction is not widely used.
 Sealed first-price auction
also known as a first-price sealed-bid auction.
all bidders simultaneously submit sealed bids.
So, no bidder knows the bid of other
participants. The highest bidder pays the price
he submitted.
This type of auction is distinct from the English
auction, each bidders can submit only one bid.
As bidders cannot see the bids of other
participants they cannot adjust their own bids
accordingly.
Sealed first-price auctions are commonly used
in tendering, particularly for government
contracts and auctions for mining leases.
 Vickrey auction
also known as a sealed-bid second-price
auction.
the winning bidder pays the second highest
bid rather than his or her own.
This is very similar to the proxy bidding
system used by eBay, where the winner
pays the second highest bid plus a bidding
increment (e.g., 10%).
Although extremely important in auction
theory, in practice Vickrey auctions are
rarely used.
 VI. Awarding and delivery of
purchased goods
Immediately after the auction award the
buyer signs a contract.
The goods delivery can be performed only
after the buyer pais for them, thus acquiring
ownership of property.
It is also possible installment payment: 30-
35% is paid after signing the contract and the
rest is paid after receiving the goods.
Ex-works delivery condition is used,
meaning that the risk and cost of goods
delivery is beared by the buyer.
 Auction Simulation
Item for sale
Item description:
-anoriginal painting performed
on canvas with the highest
quality oil-based paints.
-The gold plated frame
highlights once again the
charm of flowers.

Start price – 10.000$

Sunflowers, by the Dutch painter Vincent van Gogh, 1888

 Topics for reports:

1. Electronic auctions - peculiarities

and their role in international trade
2. The role of auctions in the
privatization process in Republic of
Moldova.
 Thank you
for attention !!!