Paul Milgrom works with R. Preston McAfee, John McMillan, Peter C. Cramton, Robert Wilson, Daniel Vincent, Jeremy I. Bulow, and Lawrence M. Ausubel.  This group combined to create the auction set-up for the government in the sale of the radio spectrum licenses in the United States.  The goal of the auction was to have efficient allocation of the spectrum.  The role of the sale was to reduce government regulation, and allow market value of the license to determine the final prices.  The efficiency was necessary to handle the large amounts of money involved in the bids and to ensure fairness for the bidders.  The auction selected by Milgrom's team was the "simultaneous ascending auction" that is mentioned above.  The bidding for the licenses did not end until the bidders wanted it to end.  This was the first step in the direction of the extensive use of the internet and information technology in general to conduct an auction.  It is from this that sites like ebay.com and auction2000.net have developed.
    The first time that the "simultaneous ascending auction" was used was in July of 1994, it resulted in $617 million for 10 paging licenses.  The next auction was in December 1994, and sold 99 licenses for $7 billion in total.  This has driven similar auctions in other countries throughout the world.  The enormous amount of money for the government, and the prize of the auction goes to the bidder with the highest value for the license.  The way that this happens is that each bidder bids their real value for the asset, and the bidder with the highest valuation of the asset wins for the price bid by the second-highest bidder.  The result is that the bidder who has the highest valuation of the license will win the license, and this is the most efficient allocation.   The overall experiment here is an engineering project.  There are some imperfections, but the overall experiment has worked well.  As the use of these types of auctions increases the imperfections will eventually perfect the auction and the theory.
 

    The first step in the explanation of the different types of auctions is the definition of an auction.  An auction is a formalized method for allocating scarce resources, based upon competition, where the seller wishes to obtain as much currency as possible and the buyer wishes to spend as little currency as possible.  The reason that auctions are becoming so important online is that they can provide this type of demand and supply to find the most efficient price for an item.  As sites like ebay.com grow, the efficiency of the online market will increase.  An easy example to see how this works is to analyze the commission that ebay charges on each item that is sold on the website.  As the number of buyers and sellers increase, and namely the items sold, the efficiency of the auction will increase.  As for the state of auctions today in general - they are a multi-billion dollar industry, they allow for equality of access to an item, and they provide a quick source of suppliers assets to demanders.
    The usefulness of the auction is also important for selling items with undetermined values, a simplistic way of determining the market-based price, more flexible than setting a fixed price, less time-consuming than haphazard negotiations, and ensures that the resources are distributed to those who value them most.  There are two types of valuation for the independent bidder.  He either bids for personal consumption or for the purpose of selling later at a higher price.  This happens when the demand for an item up for bid is not commanding normal valuation and a normally uninterested bidder will now have an arbitrage opportunity if he buys the asset.  Ebay.com prevents this from occurring too frequently by allowing sellers to create a reserve requirement that prohibits the item from being sold for a price under what the seller deems appropriate.  In addition to the valuation of the item, another important aspect is the risk of the bidder or the seller.  If the seller is being chased by the IRS and needs to pay them off, he can get a better price for his car on an auction if there is enough demand for the car.  This is a case where the seller has a disadvantage because he needs to sell the car.  The bidder can also be at a disadvantage if he needs to get a birthday present for his daughter's birthday tomorrow and her favorite beanie baby is up for auction.  In this case, the seller has an advantage and will probably profit if there is sufficient demand for the stuffed animal.  However, for most auctions that occur, a risk neutral position is assumed by both bidders and sellers.  More important than the risk assessment of the transaction is the presence of asymmetrical information.  The man that is selling his car in the previous example knows how many wrecks he has been in and how many times he has pulled up the parking brake at 50 mph.  This is a problem for the bidder and promotes a type of asymmetrical information called adverse selection.  The bidder will select the car based on price even though he might be able to pay a higher price and get a much better car.  Again, symmetrical information is assumed for most bidding strategies.
 

English Auction
    This is the traditional ascending-type of auction and it is also the most exciting.  The bids go by any increment that the bidders desire and works on the open outcry of the bidders competing for the item.  Some of the more professional bidders will use non-auditory signals to keep the bidding going.  This helps keep an expert inconspicuous at an English auction.  In addition, those that are inexperienced can run into a problem called "winner's curse" where they get so excited about the bidding that they end up overbidding for several items.  Assuming that experienced players are playing allows for the added assumption that they can form "rings" and agree not to outbid each other before the start of the auction.  The auctioneer of the item has great control over the auction because he can ask for the next highest price, is the only one speaking, and can choose which bids he wants to recognize.  It is this quality that helps to eliminate the chance of a ring being set up because the auctioneer can ignore suspected members of a ring.  He can typically use the tone of his voice or the use of inflection to evoke responses from the bidders.  This type of auction is also the most versatile and can be highly susceptible to an investor with a high valuation of the item and can result in more strategy in this type of auction to win the prize.  Part of the strategy that stems from this auction is that the seller specifies a reserve requirement that must be met.  If the final, winning bid is less than the reserve, then the item is not sold.  Thus, there is no guaranty that even the winning bidder will get the item.

Dutch Auction
    This type of auction starts with the opening price that the seller sets, then the price descends until the highest valuation of the item wins.  A better way to explain this is this that as the price descends during the bidding, the bidder may purchase the item at any time and the highest valuing bids win.  More specifically, the initial price will be extremely high and then once the price nears the valuation of the bidders, they call out "mine" and press a button that stops an automatic clock. After the first bidder gets an item, then the rest of the bidders get the items for even less money.   Typically there are more than one or two items, in fact, there are many and the bidders may take the item at any time as long as their initial bid is high enough, while the price declines.  Typically, the auctioneer has very little control over this type of auction and is up to the discretion of the bidders.  In addition, the ring of the bell to end the bidding is not important because the price is declining the entire time.  The bell doesn't ring when the bidding is over, it only rings when all the items have been sold.  A common use of this type of auction is Filene's basement in Boston, MA.  The items are ticketed with a price and a date and the longer the item is on the shelf, the higher the discount - ranging from 10%-70%.  Supporters of the Dutch Auction over the English Auction claim that the English Auction allows for an underbidder to get a low price for the item and the seller gets left short whereas the Dutch Auction makes bidders with a high valuation of the item bid early and thus get a closer approximation of their valuation of the item.

Both of these types of auctions are open-outcry auctions.  In contrast, there are also sealed auctions.

First-Price, Sealed Bid
    This type of auction has two stages that include a stage where the bids are sealed and then submitted to the auctioneer, and then the second stage where the bids are opened and the winners of the auction are revealed.  In addition, there are two different types of this sealed bid auction depending on the numbers of items up for bid.  If there is only one item up for bid, then it is a first-price auction and the highest bid gets the item.  A multiple item bid is called a "discriminatory bid" and the highest bids are revealed and then the items are given to the top bidders until the prizes run out.  In this case, it is to the advantage of the bidder to try to bid closer to the market valuation of the item so that he doesn't end up paying too much for the prize.  It should be noted that this is one of the ways that the Fed can sell off some debt or U.S. Treasury securities.  This is one of the less popular ways of having an auction.

Uniform, Second-Price Auctions (The Vickery Auctions)
    This auction is named after William Vickrey, the winner of the 1996 Nobel Prize in Economic Sciences.  This is another type of sealed-bid auction where the winner of the auction gets the prize for the amount that the second-highest bidder bid.  This is the same type that Paul Milgrom and his colleagues endorsed for the auctioning off of the radio spectrum licenses for the U.S. government.  In addition, it is a possible candidate for a new way that the Fed can sell U.S. Treasury debt.  As a result of the sealed bids, the bidders can't form rings or collude before the auction to get the items they want without outbidding each other.  The result is that the buyers and sellers get the most value from this type of auction because it is the closest approximation to market value.  Another important aspect is that all the prizes go for the same price for the prize.  This eliminates discrepancies for the different bidders and prevents a CEO of a company from having to explain to his shareholders why he paid $300 million for the same license that his competitor paid only $255 million for.  This is the most popular form of bidding and is being used more and more.  This type of auction is also good for the bidders because they will adjust their bids upward since there is less fear of a "winner's curse."  Aggressive bidders are also rewarded because they receive a sure reward but pay a price closer to market valuation.  The last quality is that the revenue of the auction is well above the revenue from any other auction.
 
 

The preceding are the four major types of auctions.  There are others to be mentioned and they are in the following paragraphs.  It should be noted that most discussion of the efficacy of auctions is restricted to the first four auction types, the following are examples of real world auctions which are not formally auctions.

Continuous Double Auction
    This auction works by the continuous bidding of buyers and sellers for an item.  An example is the NYSE.  This exchange works on the matching of bids by buyers and sellers and then completing the deal.  The trading does not stop for the transactions that occur and thus it is a continuous auction.  The bids are not sealed, but they are anonymous because of the large numbers of buyers and sellers.  As computers become more automated, the possibilities for this auction are infinite.  It is predicted that as the pace of technology increases, more and more auctions will be held in this way because of the ease of the transaction and matching of buyers and sellers through a computer.  There is much less room for analysis of these types of auctions because of the large numbers of buyers and sellers, and as these auctions are automated, the possibility of analysis will decline.

Dutch Double Auction
    Research is currently being done at the University of Arizona on a dutch double auction which is much more formal than a regular double auction.  Instead of being continuous, there are two stop clocks, one for the buyers and one for the sellers.  The price begins on the buyer side and descends until there is a bid on the item and the auction pauses.  Then the stop clock for the sellers begins and the price ascends from the starting price.  Once a seller likes the price of the item, then they stop the clock and sell.  The auction continues until the price on the buyer and the seller side coincides.  This is not a common form of auction yet, but again, like the continuous double auction, it will be used more and more as technology allows.

The following types of auctions are also not part of the four major types of auctions, but they are included for more information on auctions and auction theory.  Once again, all of this information was obtained at the agorics website and the following are attributed to a book by Ralph Cassady - Auctions and Auctioneering.

The Simultaneous Bidding System
    This is also called the Japanese System and it comes from the fresh fish market.  The way that this auction works is that the bidders use hand signals to show the amount that they want to bid for an item.  The highest bidder wins the fish, but the catch is that the bids must all be made within an allotted amount of time.  The reasons for this are quite obvious given that the sellers of the fresh fish can hardly afford to wait for a slow auction to progress.  The result is that this auction goes by too fast to allow for much collusion and is extremely loud and informal.  This is unlikely to be used for any formal arrangement or any grand scale, but to a market where freshness is important, this auction is integral.

The following types of auctions are further split up by Cassady into haphazard systems and non-haphazard systems.  A haphazard system consists of a system in which the bidders all communicate to the auctioneer their bids privately and then the auctioneer considers the bids and then chooses a winner.  The reason, Cassady states, that these auctions are haphazard is that the bidding does not ascend or descend, but is taken randomly by the auctioneer.  With that said, there are three types of haphazard auctions:  The Written-bid auction, the Handshake Auction, and the Whisper Auction.

The Written-Bid Auction
    This type of auction is again based on a Japanese market, this time the dried fish market.  This auction is composed of buyers that submit their bids to the auctioneer on written paper.  After a set amount of time, the auctioneer announces the winner of the auction, assuming the reserve has been met.  This is very similar to the American system of bidding for housing contracts, except for one major difference, the housing contract auctions are done on a much larger time scale.  Often, the contracts are given weeks or even months later.  This will not work for a commodity market because bidders do not want to spend so much time just to get some fish that they must wait months to obtain.  A possible solution to this problem is to make the these auctions simultaneous.  This would make sense except that some of the bidders will desire some of the fish as complements.  If they have a certain amount of money to spend, they are not willing to bid for another type of fish until they know whether they have won a separate auction.  If the auctions are continuous, then the bidder is out of luck because they can't know the results of the first auction until after they bid on all of the auctions.

The Handshake Auction
    This is probably the neatest type of auction we explored in this project.  In this type of auction, the bidders all stand around the auctioneer in a circle.  There is a cloth that is placed over the handshake that the bidders make with the auctioneer.  The auction moves from hand to hand and each bidder gets to shake the hand of the auctioneer once.  The bidder will shake the hand of the auctioneer and announce some number or unit to tell the auctioneer and the other bidders the increment of the bid.  The bidder, to bid 20, would call out ten and then squeeze two of the fingers of the auctioneer.  The secrecy of the bids continues even after the auction is over because the amount of the winning bid is never disclosed.  The auctioneer is thus subject to considerable collusion pressure.  As a result, this type of auction is not very popular on the whole.

The Whisper Auction
    This type of auction is used in the fish markets, much like the written-bid auction, and it follows much the same format.  The auctioneer announces the item that is up for sale and then the bidders whisper into the ear of the auctioneer their bid.  The auctioneer then decides which of the bids wins and keeps this information private.  There is a lot of room for collusion here as well. Agorics and Cassady state that the seller of the item has the power to refuse to sell to bad credit risks even though they may have the highest bid.  This type of auction benefits the seller much more than the bidder because of the lack of control that the bidders have on the auction unless they collude and is thus more of a local phenomena, not something done on a grand scale.  In addition, the bidders also gain knowledge about the market price of the fish that they are selling and this is more important than the actual auction itself for the seller.
 
 

The following auctions are non-haphazard auctions as defined by Cassady, and they consist of four more types of auctions:  the TIme-Interval auction, the Silent Auction, the Audible-Bid Rotation Auction, and the Swiss Auction.

The Time-Interval Auction
    This type of auction is similar to the English auction in that the bids are public and the bids can be revised upwards.  The restriction put on the time-interval auctions is that the bids must all be made within the time frame that is made.  A common form illustrated by Cassady is the example of the burning candle.  In this type of auction, the bidders circle around the candle and bid until the candle finishes burning.  The auctioneer cuts the candle so that it is about an inch long and can sometimes put a pin in the candle, an inch below the top of the candle.  When the pin falls form the candle, the auction is over.  This type of auction is beneficial to the bidders because of the amount of control they have over the auction.  The strategies used by the bidders include bidding very high early on to scare off other bidders and waiting until the last second to place your bid.  In any case, the bidder has much more control in this auction than in many of the others.

The Silent Auction
    This type of auction is familiar to most people.  In it, the bidders write their bid on a sheet of paper and turn it into the auctioneer.  Again, like the time-interval auction, the time limit is the end of the auction.  The top bid is posted on the board and the bidders usually wait until the very end to turn in the last bid and win the item.  It is common for the bidders to be more docile in these types of auctions than in others because of the setting that they are presented in.  Usually this type of auction is a charity auction and the bidders are eating dinner and enjoying presentations at the same time.  The items are all to benefit charity and thus all bids are made in a sort of jest.  It is rare for tempers to flare at a silent auction.

The Audible-Bid Rotation Auction
    This auction is similar to the handshake auction because the bidders follow a rotation, but the bids are open and are public knowledge in this type of auction.  The high bid is written on the board and the rotation continues until all the bidders pass and the winning bid is determined.  In other words, if Bennett bids $20 for a magazine and the rotation continues around the group, if the other three pass on the item, then Bennett wins the item.

The Swiss Auction
    This type of auction is similar to the first-price, sealed bid auctions except that the bids can be withdrawn by the winning bidder.  The reason for this is that this used for the Swiss construction industry and the companies involved usually are bidding on more than one project at a time and thus don't know if they will be able to complete the project.  This is not written into the rules though, because collusion would corrupt the system.  As a result, the auctioneer has most discretion over whether to allow the withdrawal of the bid or not.  As long as the spread between the highest and second highest bid is less than 10%, then the auctioneer will usually allow the withdrawal.  This system allows for more competition for the projects because companies will bid on more than one project knowing that they can withdraw the bid if they can't fulfill the job.