This essay will discuss the application of auction theory principles on the sale of a house. The essay will show the advantages and the apparent limitations of different auction theories. The essay will then conclude to which auction system should be used for the sale of the house. The auction theory models will be critically assessed and analysed to see whether they affect the sale value of the house in an auction.

In economics, auction theory deals with the operations of auction markets including the researching of properties found or available in the auction markets (Mughal, 2011). An auction as a design of sales is composed of a variety of set of rules and designs. Auction theorists focus on things such as the efficiency of a given auction design, revenue comparison, as well as the optimal and equilibrium bidding strategies. The design of real-world auctions is actually informed by the use of auction theory. Traditionally, the allocation of a single item utilizes four types of auctions. These auctions include the English auctions (Open ascending-bid auctions), Dutch auctions (Open descending-bid auctions), Vickrey auctions (Second-price sealed-bid auctions), and the First-price sealed-bid auctions (Nakajima, 2011). These auction theory principles can be applied to the design of sales for any given type of merchandise. In the market, the auction has become one of the most appropriate tools for disposing of merchandise to the prospective buyers hence the development of the auction theory principles. Houses form one of the goods that can be transacted by a way of auction considering their value in the market. The different types of houses that befit auction as a transaction mode include public houses that require privatization as well as houses owned by mortgage defaulters, among other examples. The paper discusses the application of auction theory principles to the design of sales for houses.

English Auctions (Open Ascending-Bid Auctions)

This type of auction is considered an open-outcry ascending dynamic auction (Stevenson and Young, 2015). It is executed in a series of steps. To open the auction to the prospective customers, the auctioneer announces a suggested opening bid, which serves as the reserve or the starting price for the goods on sale. Once the auctioneer suggests the opening price, the floor reciprocates by announcing their preferred prices for the merchandise in an increasing manner (Stevenson and