Swedish auction

Swedish auction
In 1961 William Vickrey (Nobel Prize 1996) laid the foundation for modern auction theory. Whenever “Single objects of high value” are to be sold, an auction should be used for pricing purposes, rather than an “Asking Price” or a “Posted Price”.

Auctions have increasingly been used for pricing and selling real estate, such as family houses and apartments. In English-speaking countries “English Auction” became the preferred type of auction, typically lasting 10 minutes. In Australia about 80 percent of homes are sold in this way. In Sweden however, a two-step auction was preferred, starting with sealed bids and after about one day continuing as a slow open ascending auction by phone, fax or e-mail, typically lasting 10 days. Since real estate usually is purchased with borrowed money the bidders thus have enough time to talk to their banks several times while the auction is still in progress. Before the final bid, additional financing may thus be secured. Final bids will on the average be 20 percent higher with Swedish Auction compared to other pricing methods. Typically more than 20 competing bidders take part in these auctions. In Sweden´s metropolitan areas about 70 percent of homes are sold in this way. In the local market this type of auction is just called “auction” or “bidding”. But it is called “Swedish Auction”, when it becomes necessary to distinguish it from other types of auctions. English auction is almost never used for real estate in Sweden, except by court order. For newly-built houses mostly a “Posted Price” is set. In the remaining cases an “Asking Price” or a “First Price Auction” is used.

Swedish Auction or very similar types of auctions are to a certain extent being used in the USA and other countries. In the USA the General Services Administration GSA uses an auction type, that is almost identical to Swedish auction, with astonishing results. Thus on 2006-06-28 GSA sold a lighthouse with the Final Bid reaching almost nine times (!) the Suggested Opening Bid, SOB. The SOB was based on prices obtained through other pricing methods. (GSA is the US government agency for the sale of surplus real estate, etc.).

It should be noted, that in recent years, in the USA, the UK, Canada and Sweden there has been intense development, whereby Auction Theory has been put to work in the "real world". It is estimated that more than a hundred professors and other researchers worldwide are engaged in development work. Work on Swedish Auction started in 1982, but this auction type is constantly being improved through new experiments in Sweden and the USA.

For other types of auctions see Auction.

Journal of Economic Literature, JEL, Classification System: D4 - Market Structure and Pricing. D44 - Auctions.

Further reading

* Milgrom, Paul (2004). Putting Auction Theory to Work, 384 pp. Cambridge University Press. ISBN 0-521-53672-3.

* Zacharias, Claude (2001). Fastighetsmäklarlagen i praktisk tillämpning, 608 pp. Norstedts Juridik AB. ISBN 91-39-10503-2. Pages 232 and 233 rather comprehensively deal with Swedish Auction, using the exact English word.
* http://sv. .org/wiki/Svensk_auktion (Here is a list of additional reading for those who read Swedish).

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