The idea of auctions is as old as the hills. Its history dates back to 500 B.C., and the earliest auction house in the world was established in the 17th century. Thinking about that period, you may imagine spacious galleries, decorated in an aristocratic manner, honored guests holding fans, and a coveted object for sale in the spotlight.
In the modern day, the sale process by auction is still highly valued due to the incredible excitement, allure of authenticity, and opportunity to purchase rare items at a bargain price.
However, the shift to digital systems provoked a major change in this industry. Nowadays, auction participants can make a deal from the comfort of their own homes, while the candle that once measured the duration of the auction has been replaced by auction software—a bidding countdown clock.
Although the word “auction” emerges from the Latin verb “augere”, which means “to increase”, there are broad variations of auction types in terms of bidding strategy. Modern auctioneers pick one or another auction type according to their business niche, type of organization (commercial or non-profit), and the specifics of their target audience.
Keep on reading if you want to learn more about the different types of auctions, their key particularities, fields of use, and core functionalities and determine which type is the most suitable for your e-commerce enterprise.
An English auction is the most common form of both online and offline auctions. It follows the open-cry ascending price protocol. An English auction starts with the lowest price (stated by an auctioneer), which gradually increases as each participant places a bid.
The last highest bid within the auction time limit decides the auction winner, who then purchases the lot for a price equal to their bid.
Main peculiarities
Here are some of the distinctive features of an English auction:
Every participant can keep track of the number of bidders and the sum of the bids they made.
The attendees’ opinion on the lot’s value can depend on the dynamics of trading. For example, once a well-known expert bids actively, it demonstrates the lot’s true worth. On the contrary, sluggish trading lowers the value of the lot.
An English auction can be employed to study the market demand for a certain product.
This auction type is frequently used for selling unique items that are of interest to a wide audience.
A Japanese auction, which is a variation of an English auction, is based on the following conditions:
The initial price is being gradually increased by an auctioneer;
Bidders can terminate their participation at any time;
Attendees are not allowed to reenter the auction;
The last buyer wins the item.
Such an auction format is relevant for bidders who know exactly how much they are willing to pay for the lot, so they don’t need to depend on the decisions of other bidding participants.
Fields of use
As the most widespread auction type, an English auction has a wide field of use. Although it can be used for all kinds of goods, the following industries predominantly prefer an English auction:
Antiques (luxury goods);
Collection items;
Real estate;
Pre-owned goods (garage sales);
Cars.
Christie’s is a good example of a long-established auction house that got a second wind and became an industry leader in digital innovations. Founded in 1766, Christie’s is currently a big corporation, which covers up to 80 art and luxury categories with a price range from $200 to $100 million. Christie’s provides up-to-date viewing and bidding experiences, enhanced by augmented reality, global live streaming, and other trendy e-commerce technologies.
A reverse auction is also known as a buyer-determined auction. In contrast to an English auction, this type of auction can be described as an open-cry descending with one buyer and multiple potential sellers.
In simple words, a buyer puts up a request for a particular product or service. Sellers compete for the opportunity to make a sale, continuously decreasing the price and underbidding each other. As a rule, the auction winner is the seller who offers the lowest price for their products or services.
Yet, a buyer is not obliged to choose the lowest price offer. Additional factors, such as the seller’s reputation, estimated shipping date, etc., can be considered as well.
Main peculiarities
To better understand the market relevance of a reverse auction, let’s look at its main characteristics:
A reverse auction is most relevant if the goods or services put for sale are not unique and can be offered by numerous sellers;
A reverse auction is a good option for a buyer who needs to know the real market price of an item;
This type of auction enables wholesale purchases to be made cost-efficiently.
Fields of use
It’s necessary to highlight that a reverse auction, due to its specifics, is ideal for simple, mass-market products. On top of that, to ensure the competitiveness of the auction process, there should be enough sellers who offer similar goods and/or services.
Thus, this auction type is frequently used for the following purposes:
Wholesale trading. For example, when a B2B company needs to purchase office furniture in bulk, it can hold a reverse auction with several suppliers, who will offer their products at a better price.
Services/freelance (B2B, B2C).
Government procurement.
Smarttender.biz is a good example of a commercial and government e-procurement platform that hosts reverse auctions and assists bidders in distributing their products/services and customers in selecting the best prices among multiple suppliers.
Dutch Auction
A Dutch auction is similar to a reverse auction. Both follow the open-cry descending protocol, which means that the bidding process starts with the highest price. The difference between the two is that in a Dutch auction, there are multiple buyers and one seller who gradually lowers the lot price until one of the bidders accepts it.
Main peculiarities
Here are some ins and outs of Dutch auctions:
Bidders realize that each bid reduction lowers the possibility of winning. At the same time, each bid reduction lowers the price they will have to eventually pay.
Although it’s an open auction, it’s impossible to proceed according to the behavior of the other participants, since the first opinion expression terminates the auction process and defines a winner.
Artificial price increases or decreases are not common for the trading dynamics of a Dutch auction. The decision on the price the participants are willing to pay is made before the auction starts, so there are no factors that can impact this decision during the auction process itself.
A seller can set a limit on the lowest price for the lot.
Fields of use
A Dutch auction is considered a wholesale auction, where a seller can quickly sell multiple items simultaneously. Therefore, it’s frequently used on wholesale B2B auction marketplaces. This type of auction is also suitable for selling real estate.
The Aalsmeer Flower Auction follows the Dutch auction system. Held in the Netherlands and considered the largest flower auction in the world, it sells approximately 20 million flowers daily from distant places, such as Ethiopia, Colombia, Ecuador, Kenya, Israel, etc. The Dutch bidding system generates considerable excitement among attendees: those who buy too fast risk overpay and those who wait too long risk missing the chance to win the lot.
All-pay auction
An all-pay auction is an auction where all participants have to pay their bid amount regardless of whether their bid is winning or not. This auction type can be either open or closed.
The idea behind all-pay auctions is the following: the more effort you exert, the higher the probability of the desired outcome. A similar idea lies behind the lottery: people who purchase a lottery ticket pay for their chance to win.
Main peculiarities
Let’s discover what benefits the all-pay auction bidding system can bring:
Each subsequent bid of participants motivates them to bid further since if they don’t make another bid, they will lose money and won’t win the lot.
The advantage is that all participants who placed a bid will pay. The disadvantage is that with such an auction bidding system, the participants will make bids very carefully.
Compared with an English auction, here, the seller can receive small amounts from multiple bidders, while in an English auction, they receive a large amount from a single bidder.
Penny auction
A penny auction is also called a bidding fee auction. This is a type of all-pay auction where bidders must pay an entry fee. During the auction, bidders are allowed to increase a bid by an amount predetermined by the seller. This amount can even be several pennies, which is where the name of this type of auction was derived from.
With each new bid placed, the duration of the auction is extended. The winner is the participant whose bid was the last when the timer hit zero. The auction with such a bidding system is mostly held online rather than personally.
Main peculiarities
Let’s find out how all participants, including the seller and buyers, can benefit from this type of auction.
A penny auction is quite popular among bidders. It allows them to pay extremely lower prices than the retail value of the purchased goods and services, provided that a large number of participants do not inflate the price of the lot.
The organizers of tenders can sell lots at low prices, since they profit from both the lot’s final price and the fees received from bidders.
Fields of use
Penny auctions are widely used for selling and buying everyday goods: household goods, electronics, bijouterie, etc.
Dealdash.com is an auction website that sells goods through, as the company mentions, a fair alternative to bidding fee auctions. DealDash slightly modernized the penny auction bidding system by offering losing bidders the option to deposit the money spent bidding unsuccessfully on other items at a fixed retail price.
A first-price auction relates to closed-format auctions. It is the second most common auction type after an English auction. During first-price auctions, participants submit one-time bids simultaneously and privately, so that any other bidder knows the sum of the bids made by their opponents. The participant who placed the highest bid becomes the winner.
Main peculiarities
Here are the main specificities of first-price auctions you should know:
Bidders understand that the higher their bid is, the higher their chances of winning the lot. At the same time, the amount of their bids defines the sum the participants will have to pay in case they win.
Since participants are not able to assess simultaneous bids, they are unable to adjust the size of their bid to take a minimal advantage over their rivals. Deciding on their bid amount, bidders risk significantly overpaying by placing too high a price. On the other hand, they risk losing the lot in case the price they placed was too low.
The advantage of a first-price auction is that this auction model reduces the likelihood of collusion between participants.
Fields of use
Due to its closed format, a first-price auction is appropriate for selling the following:
Government contracts;
Government securities (in England);
Service contracts;
Real estate;
Cars.
Realtyhive.com is a global real-estate marketplace that combines intelligent digital marketing and strategic time-limited events to help its clients sell and buy properties online. The marketplace users can accomplish this via either the traditional selling process or an auction. The platform was created in a way that allows agents and lenders to expose their objects for sale to the right audience. To place a bid, buyers should create an account at least 48 hours before the start of an auction. The bidder who wins the lot is notified by email after the auction ends.
Second-price auction
A second-price auction or a Vickrey auction is slightly different from a first-price auction. It also relates to closed-format auctions. A participant wins the lot if they offer the highest price for it; however, they need to pay the amount of the second highest bid.
Main peculiarities
Given the characteristics of this auction type, second-price auctions have the following specifics:
This auction type is efficient for buyers since the winners of second-price auctions pay the amount of the second highest bid.
In terms of profitability for sellers, a second-price auction is not the most optimal option, as their products are not sold at the best price. Nevertheless, this type of auction makes products more attractive for buyers since the price of the lot must be lower than the individual estimation of their value.
To place the most favorable bid, a buyer should take into account the actual value of an item.
The disadvantage of a second-price auction is that sellers may use dummy bids to increase their profits.
Unlike an English auction, this auction type is not suitable for studying the market demand for items.
Watch the detailed explanation of how a second-price auction works.
Fields of use
Second-price auctions are frequently picked for the real estate industry and the market of pre-owned goods.
Bidx1.com is an international property trading platform that harnesses the power of technology to provide a seamless experience of buying and selling properties online. Bidx1 is a pioneer in running digital property auctions. Its mission is to make the process of property purchasing easy, transparent, and effective.
The legal documentation for every object for sale, available on their website, lets the customers of Bidx1 make more informed decisions. Besides, the company provides online bidding demos and comprehensive content on how to invest in property through online auctions.
Unique bid auction
A unique bid auction is quite a contrast to traditional forms of online auctions. While in common types of auctions, the winner is an individual who made the highest bid, in a unique bid auction, it is not the amount but the bid uniqueness that defines the winner. Depending on the script, the winner is the highest or the lowest unique bid. Additionally, to be able to participate in a unique bid auction, buyers must pay a fee.
Main peculiarities
Let’s overview the key specifications of a unique bid auction:
Typically, the participants of a unique bid auction place very accurate prices, including cents, to increase the likelihood of the amount’s uniqueness.
To make this auction type truly profitable, a large number of bidders is required.
The possibility of purchasing an item at a price below its market value serves as an additional impetus for participants.
While high-priced items can be frequently won by very low bids or for far less than their market value, bidders are obliged to pay a participation fee. The total fee amount completely covers the real cost of an item and can even exceed it, allowing auction sellers to make a profit.
Silent auction
A silent auction is similar to a classic English auction, although bidders often participate anonymously (other bidders can still observe the number of attendees who placed a bid, but they can’t see their names). This is because the primary goal of silent auctions is charity.
Fields of use
Silent auctions are good for non-profit organizations since it’s a proper way to engage donors and entertainingly hold charitable events.
Dukar-art.com is an online auction house. Dukat regularly organizes silent auctions, predominantly selling art from the first half of the XX century, national unofficial art of the 1950s–1990s, and contemporary art.
Comparative Table of Auction Types
Let’s summarize the above characteristics in this table.
Auction Type
Characteristics
Main Fields of Use
English auction
Open ascending;
One seller, multiple buyers.
Antique, real estate, cars, pre-owned goods.
Reverse auction
Open descending;
One buyer, multiple sellers.
Wholesale trading, services/freelance (B2B, B2C), government procurement.
Dutch auction
Open descending;
One seller, multiple buyers.
Wholesale, real estate.
All-pay auction
Can be either open- or closed-ascending;
Each bid must be paid regardless of the auction outcome;
The seller receives small amounts from multiple bidders.
Everyday goods, pre-owned goods.
Penny auction
Ascending;
Bidders pay an entry fee;
Each bid extends the auction duration;
The winner is the bidder who made the last bid.
Household goods, electronics, bijouterie.
First-price auction
Closed ascending;
Simultaneous bidding;
The winner is the participant with the highest bid.
Government contracts, government securities (in England), service contracts, real estate, cars.
Second-price auction
Closed ascending;
The winner pays the amount of the second highest bid.
Real estate, pre-owned goods.
Unique bid auction
The bid uniqueness defines the winner;
Buyers must pay an entry fee.
Everyday goods, pre-owned goods.
Silent auction
Open ascending;
Anonymous participation.
Non-profit organizations.
Needs and Key Features of Antique Auction Websites
Now that we’ve got acquainted with the ultimate types of auctions, let’s refer to the basic e-commerce industries that make use of the auction business model the most. In this part of the article, we will discuss auction solution implementation more specifically and examine the core needs of each industry along with the corresponding online auction features.
The antique industry takes the lead in online auction development. The antiquities market draws more and more attention from e-commerce entrepreneurs due to the ultra-rare, and therefore high-value, lots sold on auctions. However, the large sums of money to be made are not the only reason for the popularity of antique auctions. Real experts are ready for anything to get their hands on an exclusive piece of art, so it’s also about passion.
The first step in fine-tuning the selling process on an online antique auction is to examine its needs:
A representative design that reflects the status and reliability of the auction house;
The opportunity for auctioneers to sell their items at the highest market price possible;
Compensation of costs in case an auction’s winner refuses to buy out the goods;
Dispute resolution.
The main features to consider when developing an online antique auction are:
Holding an auction:
Model ‒ one seller to multiple buyers;
Placing the lot for sale;
Registration for an auction/making a deposit to participate in the auction;
Application for viewing the lot live;
Possibility to make a bid;
Viewing a bidding history;
Reserve price;
“Buy Now” option;
“Automatic bid” option;
The ability to view the lot’s documentation or request it.
Buyer registration:
Proof of identity (TIN for the USA or documents confirming the address for Europe—for example, utility bills + registration address or ID photo + selfie);
Phone number verification using OTP (one-time-password).
Seller account:
Lot management;
Deal management;
Offer management;
Profile editing;
Notifications;
The ability to apply for the lot’s evaluation.
Buyer account:
Bid management;
Deal management;
Offer management;
Profile editing;
Notifications.
Moderation:
User profiles;
Ads.
Arbitration:
Dispute management;
Transfer of the deposit to the buyer’s or seller’s account.
Needs and Key Features of Real Estate/Car Auction Websites
Real estate and car auctions are an innovative and quite fashionable way of selling and buying used vehicles, relic cars, and property. But what is the interest of the participants in such auctions? It’s very simple.
Buyers come ready to buy—sellers expose their items to a large number of pre-qualified prospects;
Buyers can evaluate multiple items at a time in multi-property auctions;
Sellers don’t take part in the negotiation process;
The trading duration is limited—no excessively long negotiation periods for buyers, as they know exactly the closing dates of an auction.
Before you develop a top-notch platform for car and/or real estate auctions, it’s important to account for their needs:
Combining sellers and buyers on one platform;
The opportunity for sellers to find potential buyers (an additional sales channel);
Compensation of costs in case an auction’s winner refuses to buy out the goods;
Dispute resolution.
The key functionalities of car/real estate auctions involve:
Holding an auction:
Model ‒ one seller to multiple buyers;
Placing the lot for sale;
Registration for an auction/making a deposit to participate in the auction;
Application for viewing the lot live;
Possibility to make a bid;
The anonymity of bidders;
Viewing a bidding history;
Possibility to choose a buyer who did not place the highest bid;
Subscribing to auction notifications;
Reserve price;
“Buy Now” option;
“Automatic bid” option;
The ability to view the lot’s documentation or request it.
Buyer registration:
Proof of identity (TIN for the USA, or documents confirming the address for Europe—for example, utility bills + registration address or ID photo + selfie),
Phone number verification using OTP.
Seller account:
Lot management;
Deal management;
Offer management;
Profile editing;
Notifications.
Buyer account:
Bid management;
Deal management;
Offer management;
Profile editing;
Notifications.
Moderation:
User profiles;
Ads.
Arbitration:
Dispute management;
Transfer of deposit to the buyer’s or seller’s account.
Ads catalog:
Filtration;
Sorting.
Needs and Key Features of Charity Auction Sites
Charity auction websites are an integral part of any modern charity event. With the help of a website, donators are able to obtain more information about the auction’s mission. In contrast with other auction industries, self-profit is not the point of a charity auction. Nevertheless, the auction website should still have a professional look. Let’s see what else is required to justify its main purpose, goodwill:
Fundraising for charitable needs;
The opportunity to purchase the lot and take part in a charity event at the same time.
Hence, a charity auction website should come with the following features:
Holding an auction:
Model ‒ one seller to multiple buyers;
Placing the lot for sale;
Viewing a bidding history;
The anonymity of bidders;
“Buy Now” option;
“Automatic bid” option.
Buyer account:
Bid management;
Deal management;
Profile editing;
Notifications.
Ads catalog:
Filtration;
Sorting.
How Much Does It Cost to Develop an Auction Marketplace?
The examples of the leading online auction marketplaces, such as eBay, Bonanza, Christie’s, etc., prove that this business niche is quite lucrative and inspires many investors to move forward in this direction. Indeed, this market has vast prospects as it evolves along with the global trends of digitization.
Before you begin conquering the online auction industry and choosing a professional development team to assist you, you should understand the approximate cost for the auction marketplace development. Multiple factors influence this cost, such as the development approach, the auction marketplace architecture, the main features, third-party integrations, post-launch expenses, and so on.
Apart from the development process itself, other measures must be considered on the way to a fully-fledged online auction solution. For example, during business analysis, we collect the main business prerequisites, identify business growth points, and define the project scope.
Quality assurance is also important. Before you launch your website, you will need to ascertain its smooth performance and make sure there won’t be any issues with your auction platform in the future.
You can find more information on how we work by reading this article.
Dinarys, which is a proficient auction marketplace development team, will gladly provide you with a rough budget estimation for online auction website development.
Service
Cost
Business analysis
$3500–$5000
Project management
$5000–$7000
Development
$300–$1000 for the template solution
$40,000–$60,000 for custom development
UI/UX design
$5000–$6000
Quality assurance
$6000–$8000
Clean-up and acceptance
$6000–$8000
Moreover, keep in mind any possible post-launch expenses, such as SEO, PPC advertising, email marketing, and of course website maintenance, which will require additional investments on a regular basis.
Summary
Auctions have an old and rich history and a plethora of bidding mechanisms. The famous Aalsmeer flower auction is held using the Dutch bidding system, artworks are mainly sold via English auctions, while real estate auction sites can follow both the English and Dutch, first- and second-price auction bidding mechanisms.
Creating a qualitative and profitable online auction marketplace will take some time and funds. To justify your efforts, pick the right auction bidding system for your business, and ensure all necessary functionality is in place, we recommend the assistance of professional e-commerce developers, such as Dinarys.
We are always open to new projects. Each auction website calls for an individual feature set in alignment with the particular needs of our clients, and our team is delighted to address them by establishing an exclusive solution for you. Contact us, and we will provide you with more details on the auction marketplace development pricing, time frames, and functionality structure and help you plan your future business.
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