A first-price sealed-bid auction is a form of auction where bidders submit one bid in a concealed fashion. The submitted bids are then compared and the person with the highest bid wins the award, and pays the amount of his bid to the seller. This differs from a standard English auction in that bids are not open or called; bidders must submit valuations based upon supposed market value and their own willingness to pay — as opposed to engaging in competition through relative prices with other bidders. Other forms of auction include the Vickrey auction, or second price auction, where the highest bidder wins but pays only the second-highest bid.
From the game-theoretic point of view, the first-price sealed-bid auction is strategically equivalent to the Dutch auction; that is, in both auctions the players will be using the same bidding strategies.[1] These kinds of auctions give the bidders incentive to bid lower than their valuation of the item. More specifically, theoretically, a bidder will bid equal to [one minus (one divided by the number of bidders)] times his valuation.
This type of auction is used at the London Gold Exchange.