Price, Volume, Time Hierarchy
The on-line auction concept is new for many, so here are some guidelines to help you
better understand how Farmtrade.comAg winners are determined when the auction
closes. If the seller has indicated he will only sell in full lots (meaning "all or
none"), the highest price offered wins. If two offers are equivalent, then the earliest
offer wins. When the seller has indicated he will accept less than full lot bids, the
following rules apply:
- When there are bids for quantities less than offered by the seller, the highest
priced bid always wins the quantity they bid upon.
- When there are bids for the same price but for different quantities - bids for
larger quantities win out over bids for lesser quantities.
- When there are bids at the same price and for equal quantities - bids from
bidders who placed their initial bid earlier win over equal bids placed later.
Just remember this priority: price, volume, time. Although many bidders like to wait
until the end of an auction to bid, earlier bids can and do win. So, bid early and bid
often to get the deal you want!
Bid/Ask Spread
Buyers can bid prices less than the seller's "asking price" (formerly the "minimum bid
price"). The seller is under no obligation to sell below his asking price, but the bid
will be recorded and displayed so that the seller can see what buyers are willing to pay.
If the seller chooses, he can reduce his asking price to meet a lower bid price. At that
point, both parties are committed; a seller cannot raise his asking price, and a buyer
cannot withdraw or reduce a bid.
"Clearing Price in Auctions"
The price at which product is sold for all winning bidders in a particular auction
will be determined by the "clearing price" at the end of each auction. The "clearing
price" is the price of the lowest winning bid (the lowest winning bid that is greater
than or equal to the last asking price). The quantity of product will be awarded in
priority based on higher bid prices (as described above), but the price paid will be the
same for all winning bidders.
Example One: Product Does Not Sell Out at Initial Asking Price
Pallets for Sale:
|
5
|
Initial Asking Price:
|
$100.00 per gallon
|
|
Bidder
|
Pallets Bid
|
Price
|
A
|
2
|
$100.00
|
B
|
2
|
$99.00
|
C
|
3
|
$98.50
|
|
The seller can choose from the following options:
- The seller can leave his asking price at $100.00/gallon. At this price,
he will sell two pallets of product at $100/gallon to Bidder A (assuming that no
further activity occurs before the auction closes). Bidders B and C would not win
any product.
- The seller can lower his asking price. If the seller lowers his asking
price to $99.00/gallon and no other bids are placed, he will
sell four pallets of product. The "clearing price" of the auction would be
$99.00/gallon. Bidder A would receive two pallets at $99.00/gallon because he has
the highest bid. Bidder B has the next highest bid and would also receive two
pallets at $99.00/gallon. Because C's bid is below the asking price, he is not a
winner in this auction.
The seller could also lower his asking price to $98.50/gallon in the example above
and would sell five pallets of product (assuming again that no other bids are placed).
The "clearing price" of the auction would be $98.50/gallon, and
Bidders A, B, and C would all purchase product at $98.50/gallon. Bidder A would
receive two pallets becuase he has the highest bid. Bidder B has the next highest
bid and would also receive two pallets. Bidder C would only receive one pallet
because only five pallets are for sale, and Bidders A and B placed higher bids.
Example Two: Product Sells Out at or Above Initial Asking Price
Pallets for Sale:
|
5
|
Initial Asking Price:
|
$100.00 per gallon
|
|
Bidder
|
Pallets Bid
|
Price
|
A
|
2
|
$100.00
|
B
|
2
|
$99.00
|
C
|
3
|
$100.10
|
D
|
3
|
$100.25
|
|
In this case, the seller takes no action, and he sells all five pallets at the
clearing price of $100.10/gallon. Bidder D wins three pallets and Bidder C wins
two pallets.