Swiss auction
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A Swiss auction is similar to a first-price auction, but there is an important difference. Whereas the winning bid in a first-price auction is immediately legally binding for the winner, that is not necessarily the case in a Swiss auction. This auction type is used for certain building contract work, where the original specifications have been modified or the available workforce has been reduced due to other not foreseeable commitments. Also possible conflicts between the architect and the building contractor can amount to unsurpassable difficulties, making it impractical to go ahead with the building project. Normally the contract then is awarded to the second best bidder instead. If however the difference in price between the two best bids is greater than a predetermined amount (usually 10 percent) the firm submitting the best bid may still be forced to honour its bid (or pay damages). (Swiss auction has been used since about 1950).
For other types of auctions, see Auction.
Journal of Economic Literature, JEL, Classification System: D4 - Market Structure and Pricing. D44 - Auctions.
[edit] Further reading
- Milgrom, Paul (2004). Putting Auction Theory to Work, 384 pp. Cambridge University Press. ISBN 0-521-53672-3.
