Opening Bid Auction Mechanics

gemtone65

In a thread earlier today on the Goldberg sale, GSAGUY asked about the reasons for opening the live bidding at the second high mail bid. He indicated that other auction houses may open the bidding at the high mail bid.

Unless the second high mail bid opening is used, all mail bidders are placed at a further and distinct disadvantage to the live bidders. In effect, the mail bidders would be operating under a high price wins auction, whereas the live bidders are operating at a high bid price wins which is equal to the second highest bid plus some small increment. As such, mail bidders would be forced to bid very conservatively, in order not to leave money on the table. Live bidders do not encounter that risk, and therefore are free to bid up to the full value they place on the item. Moroever, in some cases where an auction house appears to rely on the high internet bid to start the live bidding, e.g., Heritage, it is not the literal highest bid that is used but rather the bid increment above the second high mail bid which is revealed in their pre-sale bidding.

I Hope this clarifies the benefits from starting the live bidding at the second high mail bid. In cases where there is just a single such bid, the auction house might begin the bidding at two-thirds of either that level or of the estimated market value. And, since all auction houses may not use the second high mail bid opening, it pays to find out what they do if you are a mail bidder. If you are a live bidder, it wouldn't seem to matter, since you would have to outbid the highest mail bid in any event.

gsaguy

Gemtone65,

Sorry, guess I'm thick...but I'm still confused.

I was thinking about this topic today before reading your post and thought that perhaps it might work something like this:

High Mail bidder bids $7500.
Second Highest Mail bidder bids $4000.

Auction company takes the $4000 bid, adds...say $100 and starts the floor bidding at $4100. If no floor bidder wants to compete, then the high mail bidder wins the coin at $4100. If floor bidders do start making bids, then the price runs up as high as possible on the floor and then another $100 is added to represent the high mail bidder. If the price on the floor eventually reaches $7500+, then the high mail bidder is no longer in the game and a floor bidder wins the coin.

To me, this would make the most sense because it would protect the high bidder from paying $7500 if the next highest bid was $4000 but would also give him a fighting chance at winning the coin if he really wanted to go as high as $7500.

Just my thoughts.

GSAGUY

gemtone65

GSAGUY: You have just described precisely how the second high mail bid opening works, and you also indicate that it seems reasonable. That is consistent with my admittedly overly technical explanation. In contrast, if the auction house started the live bidding at the highest mail bid, $7500 in your example, the high mail bidder would be at a disadvantage compared to bidding on the floor, since he would have to pay his high bid to win via the mail. If, instead, he bid from the floor, he would only pay the second high bid. Knowing this, and realizing that the auction house has a highest mail bid opening, all potential mail bidders would gain from either shading their bids, at the expense of reducing their chance of success, or having someone bid for them live.

Consider my case, lot #581. Coingame suggests the bidding opened at $1500. Maybe it was $2000. Whatever the correct figure is, that starting point probablywas chosen with reference to the second highest mail bid, because my mail bid was considrably above the starting (and ending)price. If the Goldbergs had instead initiated the bidding at the highest mail bid, then my maximum bid price would have been revealed, and I would have left hundreds if not thousands of dollars on the table for this one coin in comparison to bidding live. Fortuntely, that did not happen. In sum, no one should participate as a mail bidder in any live auction that begins at the real highest mail bid.

DesertLizard

Gemtone"

You said:

<< <i>Fortuntely, that did not happen. In sum, no one should participate as a mail bidder in any live auction that begins at the real highest mail bid. >>



Which live auctions begin at the real highest mail bid.

Thanks for your explanations I am sure some of us are lost and most of us are unaware of the mechanics!

gemtone65

DesertLizard: I don't know which coin auction firms start the bidding at the high mail bid. We know for sure that the Goldbergs and Heritage do not. But, any internet related mail bid procedure where the bids are not posted like they are with Hertage or on E-bay should be viewed with some caution. My message was primarily that if you are going to bid in a live auction by submitting a mail bid, you should first contact the auction house and ask them how they determine the opening bid. If they say they start the bidding at the high mail bid, you'd be foolish to bid by mail.

Trime

Gemtone's explanation seems clear and correct. Of course, the first mail bid (second highest) does not get the coin if no floor bidders (bids) as the book bids up with an increment to demonstrate the higher available mail bid. If no floor bids then occur the highest mail bidder gets the coin possibly at less than his/her maximum bid.

gsaguy

Gemtone65,

Finally, I understand!

And you're right, it makes sense. This sounds like an ethical way to handle an auction. Also, now that I understand the mechanics, I'd be less concerned about making a mail bid and more confident that I could win a coin fairly without way overpaying.

I like it. Great post!!!!

Thanks,

GSAGUY