DEFINITION of 'Auction'

A system where potential buyers place competitive bids on assets and services. The asset or service in question will sell to the party that places the highest bid. In most cases, sellers will pay a listing fee to the auctioneer, regardless of whether the item actually sells for the desired price.

BREAKING DOWN 'Auction'

For example, Google used a modified form of auctioning called the dutch auction when it issued its IPO. In this form of auction, prospective buyers submitted bids that included the number of shares desired and what the bidder was willing to pay for them. After the auction ended, the underwriters sorted through bids in order to determine the minimum priced bid they would accept from buyers. The IPO was priced at $85.

The internet has increased the amount of exposure that auctions now have, and bidders no longer have to be physically present to participate. Online marketplaces such as eBay connect buyers and sellers worldwide by allowing individuals to submit their bids (or list their products) online and send payment electronically.

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