Under what conditions does a seller bias exist in an auction market? When does a buyer bias exist?

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A seller bias exists in an auction market when there is a single, or only a few, sellers and multiple buyers, such that buyers compete against one another to determine the ultimate price of the product. If there are a small number of sellers there is also the possibility that they could freely and openly signal “acceptable” prices to one another through a transparent marketplace, thereby disadvantaging the buyer. A buyer bias exists in an auction market when there are one of only a few buyers and many sellers. Sellers must compete against one another for the available business.

Examples include Priceline’s reverse auctions and auctions that are conducted in a sealed bid atmosphere, like construction or other contracting bids.

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