The English auction is often depicted in movies and TV commercials and written about in epic novels: someone bids; someone else bids more; and so on until no one is willing to bid higher. When everyone is silent, the object is sold. Non-electronic ("bricks and mortar") English auctions have the familiar "going, going, gone" auctioneers' chant to end the auction (with a soft close).
The English auction is also known as an open-outcry ascending-price auction.
In the English auction, the price is successively raised until only one bidder remains, and that bidder purchases the auctioned item at a price equal to the final bid. The initial price is the reservation price. If nobody bids more than the reservation price, then the good is not sold. This auction can be run by having the seller announce prices, or by having the bidders call out prices themselves, or by having bids submitted electronically with the best current bid posted.
An advantage to English auctions is that a bidder gains information. He can observe not only that other bidders drop out, but also the highest bids at past moments. That tells a bidder a lot about the valuations of others and allows a bidder to revise his valuation on the fly.
In the English auction with private values, it is a dominant strategy to stay in the bidding until the standing bid reaches your value. The next-to-last person will drop out when her value is reached, so the person with the highest value will win at a price equal to the second-highest value.
The English Auction is strategically equivalent to the second price sealed-bid auction.
Bidding Strategies In Practice
In practice, there are a number of devices and strategies that are used by bidders, some are practical and some are psychological. The following four are listed by Sothebys, "Bidding Tips":
Bid jumping is the practice of bidding well above the next bid increment; for instance, if the bidding has been proceeding from $100 to $110 to $120, a bid jumper might bid $300. This strategy has two primary outcomes, only one of which benefits the bid jumper. In the beneficial scenario, the other bidders – sensing that the bid jumper will continue to outbid them – will cease bidding even though they might have paid more than $300. In the second, the bid jumper purchases the lot for $300 when the other bidders would have stopped bidding after $120, meaning that the final sale price should have been $130.
Cutting the Bid:
Bidding tends to increase in regular increments unless determined otherwise by the auctioneer. If the bidding has been proceeding from $1,100 to $1,200 to $1,300 and you wish to bid $1,350 instead of $1,400, you can signal this to the auctioneer by raising your arm and holding your hand horizontally at your neck, with the palm down. This evocative signal indicates to the auctioneer that you wish to "cut" the bid amount by half. It is also possible to call out the amount that you wish to bid, rather than accepting the auctioneers prompt; though this is not for the faint of heart and not to be done with great frequency.
When a bidder sticks their paddle up in the air and leaves it there, this is known as "lighthouse bidding." The message that this sends to other bidders is, "I am in this for the long haul." This may intimidate other buyers into not placing bids, or it might result in your paying more than you wanted to for an item.
Head Nod/Head Shake:
Now for the most sophisticated information you can learn about bidding in an auction: if you have been bidding on a lot and the auctioneer looks to you for the next bid, nodding your head will indicate that you are still bidding and shaking your head will indicate your withdrawal from bidding.
There are several variations of English auctions. A few examples are:
The auction starts from a very low price, and begins to increase it. Each bidder signals when she wishes to drop out of the auction. Once a bidder has dropped out, she cannot come back and resume bidding later. When only one bidder remains, she is the winner and pays the current price.
This is also called a hard close English auction. In a time-interval auction, all bidding must be completed within a certain time allotment. The time-interval method is used in the real-estate and manuscript markets, in which an auction can consume days or weeks. The eBay auction is another example.
Interesting bidding strategies are used in a time-interval auction. Sometimes a bidder will bid high early on to scare off the competition. Another technique is to wait until the final moments before offering a relatively high bid. It is commonly seen in an eBay auction that a nontrivial proportion of bids come at the last minute. For more detailed discussion, please see "soft close" vs "hard close".