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What is the difference between auction and bidding : an overview

October 29, 2021
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This article has been written by Jagrit Chawla pursuing the Diploma in Business Laws for In-House Counsels from LawSikho. This article has been edited by Ruchika Mohapatra (Associate, Lawsikho) and Prashant Baviskar (Associate, Lawsikho). 

Introduction

The terms Auction and Bidding are interrelated as both support the idea of selling a product to the public. Bidding involves the following process; a person offers a price which is to be known as a bid, the person who offers the price is called bidder and the entire process is termed as bidding. Bidding is basically used to determine the cost of a particular thing. The process of bidding generally takes place in situations where there is a large number of people showing willingness to buy a particular product or a service. Bidding is also used for determining the actual demand of a product in the market which helps in identifying its core value.  Bidding is often used by various companies, industries and many small businesses for assessing the needs of the public at large. On the other hand, auction is the process that involves buying and selling of the commodities and offering them for bidding. Auction allows the general public to bid for the offered product and sell it to the highest bidder. Bidding is considered to be a subset of Auction. There exists a competition between bidders. The whole process starts with a relatively low bidding price, then as per the demand of the general public, the bidding price goes upwards. Once the price goes upwards in the process of bidding, it can’t fall downwards. 

Meaning of  auction

Auction simply means the process of buying and selling goods or services to the bidders. The main aim for the auctioneers is to sell the product/service for the highest price. The sole purpose for auction is to just increase the commodity value in the market so that the general public would be aware about the price structure of the product/services. Generally the auction takes place for the sale of antiques, rare products, or old collectible items. 

Auction process

Before the start of the Auction process, the potential bidders or buyers are usually given a period of purview to examine and check the condition of the product. The period of examination is announced before the day of auction or a couple hours before the start of auction. After the potential buyers are done with examining the product for placing their bid, they have to get themselves registered with the auctioneer. The registration process may require the buyers’ details like identity proof, home address, Phone number, email address. Each and every bidder is given a unique card containing a number which is actually used to identify all the participants. 

The duty of the auctioneer is to actually give a brief description for the sale of an item and start the bidding process with a price which he/she finds suitable to start with. Alternately, the seller may also set the minimum bidding price that they will accept, and from there the bidding starts. The bidders then start picking up their bids and call them out as per their willingness to buy that product. The auction process is adaptive in nature, meaning that subsequently comparing with the previous bid, the price of the new bid is slightly higher than the previous one. The bidder lifts up their card for announcing the bid price. The whole auction process ends when there are no more bids left and the last bidder who made the highest bid gets the item. The highest bidder completely takes ownership of the item after paying the price of bid. 

What is bidding?

Bidding sampling means offering a price which is to be known as a bid, the person offering price is known as bidder and the whole process is called as bidding.

Bidding process

There are the steps for the bidding process which is as follows:-

This step involves a thorough understanding of a particular product or the service which the bidder tends to acquire. For Businesses, if they want to bid for a particular item, firstly they need to ascertain their needs and wants systematically and then do a S.W.O.T analysis (Strength, Weakness, Opportunities and Strengths) for a better understanding for choosing an appropriate bid and buying it in the auction process.

Here in this step, there is a dire need to choose the correct bidding option. In bidding there is no going back, once the price is selected, one can’t change its price to a lower side than what was being offered previously. 

This step involves the process of submitting the bid in the auction process. Here comes the point when the buyer needs to decide about whether to choose a particular pricing option or not. It is very essential at this point to make a note of every other competitive bidding option. When the two bidders get highly competitive, the buyer then stops thinking in a strategic manner and the emotions overpower the bidders.

Key differences between auction and bidding

Here are a few of the key differences between auction and bidding as follows:-

Difference in the meaning

Bidding involves the competitive edge of offering the stipulated pre-decided price for the particular item. It involves the willingness where the buyer shows in buying the commodity for a particular price by offering a bid or the price for the same. Bidding plays a key determining factor in deciding the demand and price of a particular item.

Auction involves the process of buying and selling the product/service. The basic content for auction is to actually get the best value of the product and service sold. The only sole reason for putting any product or service at auction is to just get the highest price.

Traditional difference

Traditionally bidding is just a process for setting up the value of a product. It is nothing but the process of placing bids for a particular item.

Auction provides the platform for bidding the goods and services, those who place the highest bid get the product.

Successive difference

Bidding is completed when the buyer accomplishes his/her desire of acquiring a particular product and service. The goal of bidding gets accomplished when the bidder is successful in winning a contract of a bid which is put in the auction process. 

The only motive of the auction is to actually call for the highest price for a good or the service. The Auction process is said to be successful when the auctioneer receives the highest price for the bidding process and not bids further left. So, achieving the highest bidding price of a product makes the auction successful. 

Motive difference

The sole motive of bidding is to create competition among buyers. Bidding creates a healthy competition for increasing the value and demand of the product or the service. 

The basic purpose of auction is to create more demand for the particular commodity which tends to put the commodity in demand and supply. The auction process helps in understanding the needs and wants of the buyers, it also helps in setting benchmarks for the product for further selling purposes. 

Value difference

A bid is actually made to achieve the highest value of a particular product in the market. The goal of the bidder is to get the item the lowest rate possible.

 It involves arranging the bidding process by the auctioneer to get the highest value for the product and services offered. Many times the companies also organize the auction fests for its products to get the best knowledge of the price of its products.

Conclusion

Auction and bidding is all about selling and buying the product at the right price for both the auctioneer and the bidder. Be it forward or be it reverse, but the motive behind buying and selling is the same. Auctioneer attempts to get the highest value of the product, while the bidder strives to acquire the product at a lower price. Some bids involve selling the product to those who bid for the highest price among other competitors. While in some cases, the auction is held for selling services to the general public at a particular stipulated price being offered by the bidders. 

Some companies see auctioning as an opportunity to get real world data of the supply and demand of their products. Both Auction and Bidding are inter-connected with each other to know the best possible price of a product or a service. 

References


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https://www.jstor.org/stable/2726107
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