A Unique bid auction is a type of strategy game related to traditional auctions where the winner is usually the individual with the lowest unique bid, although less commonly the auction rules may specify that the highest unique bid is the winner. Unique bid auctions are often used as a form of competition or lottery.
Mechanism
This type of auction requires bidders to place bids that are unique. That is, for a bid to be eligible to win no other bidder can have made a bid for the same amount. Bidders are generally able to place multiple bids and the number of current bids at each amount is typically kept secret.
There are two major variants of unique bid auctions:
Highest Unique Bid:
the bid that is the highest and unmatched when the auction closes is the winning bid. A maximum bid value is usually set at a much lower level than the actual value of the lot.
Lowest Unique Bid:
the bid that is the lowest and unmatched when the auction closes is the winning bid.
A Unique bid auction may run as follows:
If the auction declares the lowest unique bid as the winner, then the player who submitted a bid of $0.06 would win the auction, and would be eligible to purchase the product or service for $0.06, because their bid was the lowest unique bid. If the auction was for the highest unique bid as the winner then the player who submitted a bid of $0.08 would win the auction.
A $30,000 item can be won for pennies this way, however, the true price may be more than a penny as the auction site may charge a fee for the right to bid, or a fee per bid.
In this type of auction the bids of other participants are necessarily secret, although some companies may provide broad guidance following a bid, such as whether the winning unique bid is higher or lower than one's last bid.
Unique bid auctions will typically allow bids to be very precise, in that each bid can be specific to the 'penny'.
Virtually all instances of unique bid auctions are heavily dependent on the use of technology, in that they are either run solely using mobile technology (e.g. bidders submit their bids via text messages) or they are on-line auction sites, or both.
The open unique bid auction model is unlikely to be suitable for serious auctions as it essentially defeats the main purpose of auctions, to achieve the highest price for the seller.
How do they sell at very low prices?
In virtually all versions of unique bid auctions the actual value of the successful bid will bear no resemblance to the actual worth of the lot being auctioned. It will be a fraction of the lots true worth.
Therefore these auctions are funded
- by companies wishing to use them as a mechanism to gather mailing lists
- by companies using them as an advertising mechanism, similar to promotional competitions
- by bidders paying for each bid they place (the vast majority) – online payments or reverse bill SMS
- by bidders paying for a virtual "seat" to participate in a live on-line auction event (very new concept)
Are these Auctions or Lotteries?
Some view these auctions as lotteries and others as genuine auctions. However, there are very few official views on the topic, and those views that do exist can be contradictory.
It could be argued these are genuine auctions and the UK's Office of Communications (the regulator for all things related to communications in the United Kingdom) did just that when they ruled on September 4th, 2006, that lowest unique bid auctions are…
"...genuine auctions, rather than auction-based prize competitions, as callers bid, although in a competitive manner, to secure the purchase of a product. The goods were therefore for sale, not prizes."
Additionally, if we take the etymological definition of the word auction…
auction (n.)
"a sale by increase of bids," 1595, from L. auctionem (nom. auctio)
"an increasing sale," from aug-, stem of augere
"to increase," from PIE base
aug- "to increase" (see augment).
In northern England and Scotland, called a roup. The verb is attested from 1807. In the U.S., something is sold at auction; in England, by auction. Auctioneer (n.) is attested from 1708.[1]
Paradoxically, lowest unique bid auctions conform more to the true meaning of the word than highest unique bid auctions. In that, bid values increase, albeit in very small increments, during the course of the auction as competing bids are gradually matched.
The closest approximation to highest unique bid auctions are Dutch auctions, in which the auctioneer begins with a high asking price, which is lowered until some participant is willing to accept the auctioneer's price, or a predetermined minimum price is reached.
An alternative view of these auctions is that they are lotteries...
In the UK, the Committee of Advertising Practice (CAP), published an entry on their website.[2]
Key extracts:
"significant ‘prizes’ are either given or sold to the participant who guesses the lowest (or highest) unique number. Sometimes the marketers will give an upfront indication of the ‘price’ similar prizes have gone for in the past; sometimes they go back to the bidder and say the bid is not unique and often very little, if any, information is given."
"that many of that type of promotion are likely to be illegal lotteries because the outcome depends more on chance than on skill"
The key to whether these auctions can be described as lotteries is based on the level of skill, planning or strategy that can truly be applied by the participants as opposed to success being a product of guesswork, chance and luck.
Some lowest unique bid auctions require you to simply submit your bid and sometime in the future, when the auction closes, you will be told if you are successful.
Others will also tell you if your bid is unique or not when you place your bid.
These seem to fall within the CAP description of illegal lotteries as there is no way to work out how to position your bid, you have to guess.
Then there are auctions that, as well as telling you that your bid is not unique, will also tell you if the current winning bid is higher or lower.
These fall into a grey area as the information provided can help you determine how to place your next bid. However, the information is old as soon as you receive it and you have no way of knowing of any changes in direction or location since you placed your last bid.
References
- ^ etymonline
- ^ AdviceOnline (Sep. 2007)
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