Unique bid auction
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Unique bid auctions are a mix between an auction and a lottery. The participants bid for a particular item by submitting blind or sealed (ie secret) bids: the winner is the bidder who places the highest or, in some variants the lowest, unique bid.
A "unique" bid, in this context, means one in which the amount offered is the only one of that value. To facilate this, such auctions will accept bids that are specific to the pence.
In unique bid auctions, it is normal for bidders to be charged for placing their bid. The seller's payment includes the total of these charges (less costs), as well as the actual amount bid by the winning participant. For the buyer, the attraction is that they may acquire an item at well below its true value.
This type of auction may be regarded as having elements of a normal auction (placing bids) and of a lottery (paying a fee for each bid). They are legally classified as skill-based prize competitions.
[edit] Variants
The two most common types are highest unique bid and lowest unique bid auctions.
In a highest unique bid auction, a limit is set for the maximum price that can be bid. When the auction closes, the bid with the highest price that no one else has bid wins the auction.
In a lowest unique bid auction, the minimum price you can bid is typically set to $0.01. When the auction closes, the bid with the lowest price that no one else has bid wins the auction.
[edit] Examples of unique bid auctions
The following is an example of 5 bid amounts in a LOWEST Unique Bid auction:
The bidder who placed the bid of 3 cents would be the lowest unique bid and therefore the winner.
A Highest Unique Bid auction would work in the same way, except the bidder with highest unmatched bid at the close of auction would win, therefore in the above example the bid of 5 cents would win.
In a typical real example of a Unique Bid auction, a car worth $20,000 might be offered to bidders. If the auctioneer charged $10 a bid then they would need to get over 2,000 bids to cover the cost of the car. (For simplicity, this example does not take into consideration any costs for running the auction or processing payments). If at close of auction the Highest or the Lowest (depending on the type of auction) Unique Bid was $20, the successful bidder would be able to purchase the car for 0.1% of its normal price.
However, in the case of some unique bid auctions, initial and ongoing bid status messages are provided to the bidders. These messages inform the bidder if their bid is unique or not, with some information of relative positioning. This may provide enough information to enable some bidders to actively influence the outcome of an auction.
