Grades 9–12 · Societies
How does a first-price sealed-bid auction assign one item?
A first-price sealed-bid auction uses separate rules for submitting bids, allocating an item and determining payment. Sealed means that each bidder submits without first seeing the others’ bids. First-price means that the winning bidder pays its own submitted amount, not the second-highest amount.
In the diagramOne item: highest bid wins, own bid is paidFictional sealed bids shown after openingAva4Bo6Cia3Tie priority: Ava, then Bo, then CiaOne itemBo receives item • pays 6; others pay 0
The fictional auction has one item and three valid point bids. After opening, Ava’s bid is four, Bo’s six and Cia’s three. Bo has the highest bid and receives the item. Bo pays six points, while Ava and Cia pay zero. The allocation rule identifies the recipient; the payment rule identifies what that recipient owes.
A tie requires an additional rule because more than one person can share the highest amount. This miniature auction announces priority Ava, then Bo, then Cia, applied only among tied highest bidders. Thus Bo would beat Cia if both bid six, but Ava would beat Bo if both were tied highest at four.
The priority does not give Ava the item regardless of bids. It matters only after the maximum amount has been found and only within the tied group. Stating it in advance makes the resolution defined instead of silently adding a new procedure after bids are opened.
These records explain the mechanism, not how anyone should bid. The example omits private values, budgets and strategic behavior, and its fictional points are not a buying recommendation. Other auction formats can use different payment and tie rules.
About this explanation
Starting knowledge: Compare whole-number bids and distinguish a rule for awarding an item from a rule for payment.
Sources
- Duke University, Computer Science — Overview: Single-Item Auction Formats
- Georgia State University, EconPort — First Price Sealed-Bid Auction