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Auction theory Auction theory is an applied branch of economics which deals with how people act in auction markets

and researches the properties of auction markets. There are many possible designs (or sets of rules) for an auction and typical issues studied by auction theorists include the efficiency of a given auction design, optimal and equilibrium bidding strategies, and revenue comparison. Auction theory is also used as a tool to inform the design of real-world auctions; most notably auctions for the privatisation of public-sector companies or the sale of licenses for use of the electromagnetic spectrum. Auctions take many forms but always satisfy two conditions: 1. 2. They may be used to sell any item and so are universal, also The outcome of the auction does not depend on the identity of the bidders; i.e., auctions are anonymous.

Most auctions have the feature that participants submit bids, amounts of money they are willing to pay. Standard auctions require that the winner of the auction is the participant with the highest bid. A nonstandard auction does not require this (e.g., a lottery). Types of auction There are traditionally four types of auction that are used for the allocation of a single item:

First-price sealed-bid auctions in which bidders place their bid in a sealed envelope and simultaneously hand them to the auctioneer. The envelopes are opened and the individual with the highest bid wins, paying a price equal to the exact amount that he or she bid. Second-price sealed-bid auctions (Vickrey auctions) in which bidders place their bid in a sealed envelope and simultaneously hand them to the auctioneer. The envelopes are opened and the individual with the highest bid wins, paying a price equal to the exact amount of the second highest bid. Open ascending-bid auctions (English auctions) in which the price is steadily raised by the auctioneer with bidders dropping out once the price becomes too high. This continues until there remains only one bidder who wins the auction at the current price. Open descending-bid auctions (Dutch auctions) in which the price starts at a level sufficiently high to deter all bidders and is progressively lowered until a bidder indicates that he is prepared to buy at the current price. He or she wins the auction and pays the price at which they bid.

Most auction theory revolves around these four "standard" auction types. However, other auction types have also received some academic study, such as:

All-pay auctions in which bidders place their bid in a sealed envelope and simultaneously hand them to the auctioneer. The envelopes are opened and the individual with the highest bid wins, paying a price equal to the exact amount that he or she bid. All losing bidders are also required to make a payment to the auctioneer equal to their own bid in an all-pay auction. This auction format is non-standard, but can be used to understand things such as election campaigns (in which bids can be interpreted as campaign spending) or queuing for a scarce commodity (in which your bid is the amount of time for which you are prepared to queue). Amsterdam auctions, a type of premium auction which begins as an English auction. Once only two bidders remain, each submits a sealed bid. The higher bidder wins, paying either the first or second price. Both finalists receive a premium: a proportion of the excess of the second price over the third price (at which English auction ended)[1]. Unique bid auctions Many homogenous item auctions, e.g., spectrum auctions Simultaneous multiple-round auctions Position auctions Generalized second-price auction Menu auction Ascending package auction

Negotiated Market

A secondary market in which potential buyers and sellers negotiate the price of each transaction. Most stock exchanges are negotiated markets: buyers express interest by posting bid prices and sellers do the same with ask prices. A negotiated market operates according to the law of supply and demand. See also: Market price, Fair market value. Farlex Financial Dictionary. 2012 Farlex, Inc. All Rights Reserved Want to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit the webmaster's page for free fun content. In-House Trade A trade that occurs within a brokerage. In an in-house trade, a broker who receives an order from a customer to buy a security does not find an outside seller, but rather fills the order from within the brokerage's own inventory of the security. This may or may not result in the best price for the client, but is almost always profitable for the brokerage. Definition of Trading House 1. Identification o A trading house is involved in the import, export or trading between third countries in products that are manufactured by other companies. Trading companies also buy and sell products, goods and services for their own accounts. They are also purchasing agents that supply foreign countries with commodities. Trading houses work on commission. Significance

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Benefits

Trading houses play a very important role for manufacturers and foreign countries in moving goods. They have a significant place in the global economy and they provide strong competition on both domestic and international markets.

Trading houses find a market, buyers and sellers and they also negotiate terms of a transaction. They also handle paperwork involved, protect their clients from all export related risks, provide promotional services and follow up on deals. Trading houses are efficient, tailor their services to those who need them and manage risk on all levels.

Define Trading House


1. Basics

Trading houses provide a third party or third-country option for manufacturers and buyers that want to utilize international trade experts to move ship or receive goods and services. Trading houses can serve as import or export agents, but at times they function as purchasing agents.

Importance

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The use of trading houses began to increase in the 1990s because of the growing global economy. A more competitive foreign trading environment has prompted many top manufacturers and importers to rely on trading house experts who understand global markets and international trade.

Trade Strategy

Countries vary in their level of support for the use of international trading houses. Japan is recognized as a leader in trading house operations. Some countries prefer to encourage alternative means of exporting and importing that are more financially beneficial to them. Others understand the relevance of trading houses in the global market

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