What Is A Vickrey Auction ?

If you thought the world of the online auction was a complicated one, believe us, you haven't seen anything yet!

If you are no stranger to the world of online auctions then you will know that they exist in an almost unbelievable number of forms. Well, guess what, that count just went up by one as we introduce to you...The Vickrey Auction!

If you are the type of online shopper who loves taking part in online auctions, but gets frustrated at never being able to win the lot that you had your heart set on, then we have a new form of online auction just for you. This form of auction opens out the field, and gives anyone and everyone an equal chance at winning the lot, and come away with a great deal on that new dress, computer or anything else you have set your sights on for that matter. And over the next couple of paragraphs we are going to explain to you exactly how it works.

A Vickrey Auction is a blend of a couple of different types of online auction, but with a sneaky little twist all of its own.

The first thing you should know about a Vickrey Aucton, is that it is a sealed bid auction. For those of you who are unfamiliar with the notion of a sealed bid auction, let's take a minute to explain how they work. Sealed bid auctions are a special way of holding an auction which means that everyone is in with an equal chance at winning it.

Everyone who is interested in an item which is being put up for sale in a sealed bid auction, has the chance to bid on it as they see fit. As in all other forms of auction, it is up to the bidders to decide the bid amount which they would like to place on their lots. But where sealed bid auctions differ, is in the process that follows the placing of the bid. In normal auctions, everyone else who is interested in placing a bid on the same lot, will know about and be able to see the amounts that have been bid by others. This will then allow them to leverage their bids to out manoeuvre all of the current bidders, and therefore secure the auction for themselves.

Well we are glad to say that this is not the case in a sealed bid auction. In these types of online auctions, none of the other interested bidders are able to see the value of the bids you have placed. This makes it much harder for them to go on and outbid you. It also works great for the seller, as it means that people will bid what they think is a fair price for the lot, rather than just bidding the minimal price they feel they could get away with paying.

So that is basically how a Vickrey Auction works, except there is one small twist still to come. In a Vickrey Auction the winner (the person who has bid the highest amount) does not pay the amount that they have bid. They pay the second lowest bid amount. So everyone is a winner in the Vickrey Auction.


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