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Proxy bidding is used in second

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Though many people only associate proxy bidding with online auction sites, it happens in physical auctions as well. In a physical auction, the bidder who wants to bid by proxy usually calls or e-mails his maximum bid to the house before the auction begins; in an online auction, he gives this information to the auction site at any point once the auction is open. In both cases, the bidding process is automatic, and the proxy bidder doesn’t have to do anything further unless his maximum amount is reached. If that happens, the auction holder calls or e-mails the person bidding by proxy, who can decide whether he wants to keep on bidding beyond his initially identified maximum price. If the maximum amount is not reached but other bidders give up, then the proxy bidder only pays the last bid amount, not his maximum price.

Proxy bidding is used in second-price auctions, which are those in which the winning bid is one bidding increment higher than the second place bidder. This means that the highest bid – which is the highest maximum placed by any proxy bidder – is sealed, but the second-highest is always public because the current high bid is one increment higher.

For example, two people are bidding on an item. Bidder A sets a maximum proxy bid of $100 US Dollars (USD). If bids increase in units of $10 USD and A is the only bidder, he’ll have the high bid with $10 USD. If bidder B joins the auction and sets a maximum proxy bid of $150 USD, the high bid is now $110 USD – the maximum of the second-highest bid ($100 USD) plus the unit increase ($10 USD). The actual maximum that B is willing to pay – $150 USD – is not known unless someone else bids more and it becomes the second-highest bid.

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  • Posted On June 1, 2012
  • Published articles 10

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