The type of an auction determines the way in which the bids are submitted during the bidding process, i.e. how the bidding rounds are organised. It can be performed as a sealed-bid auction, a descending clock auction or as a hybrid of these two formats.

Auctions can be organised either with a static or dynamic bidding process. In a static auction, one bid is submitted for each project, and the auctioneer then evaluates all bids. During the auction process, bidders do not know the bids submitted by their competitors.

In a dynamic auction, on the other hand, bidding takes place over several rounds. Bidders thus have the chance to observe the development of the auction price and other bidders’ bids and to adapt their bidding strategies during the auction process.

Your choice of auction type has implications on how likely you are to have problems with implicit collusion or the Winner’s Curse.

More on dynamic and static auctions

Because dynamic auctions allow bidders to observe each other, they reveal more information than static ones. However, they are also more complex to implement, especially when there are very large numbers of bidders. They are also more vulnerable to implicit collusion. This is even more dangerous if the number of bidders is very small. On the other hand, since bidders can observe their competitor’s bidding behaviour and adapt their strategies accordingly, dynamic auctions reduce the risk of Winner’s Curse. If the number of bidders is neither very large nor very small, this benefit may outweigh the two drawbacks mentioned previously.

The benefit of more information being revealed in dynamic auctions is especially pronounced if auctions are held only once, or rarely. If auctions recur frequently (i.e. annually or even several times a year), then even static auctions permit bidders to observe the behaviour of their competitors over several rounds.
Both static and dynamic auctions can be combined with different pricing rules, as you will see on the next page.

Given these properties, dynamic auctions tend to be more suitable for situations with a medium number of bidders, and where bidders are large or experienced enough to handle a high level of complexity. The reduced risk of Winner’s Curse must then be balanced against the higher risk of implicit collusion. Static auctions tend to be more suitable for situations with a very large or a very small number of bidders, or if the policy maker wants to ensure that smaller or less experienced bidders are not deterred or disadvantaged by a very high level of complexity. The auction designer/auctioneer also faces a higher level of complexity in a dynamic auction.


Combinations of static and dynamic auction types are possible and could bring advantages in terms of mitigating the drawbacks of each type. A combination which has been implemented in Brazil in the past is a first phase with a descending clock auction followed by a second phase with a final round of bids using a pay-as-bid scheme. This auction format is generally used to extract value from bidders in auctions of goods with lesser-known values. The objective of the first phase is to provide some price discovery for the players so that those bidders who can sell the product at the lowest cost are selected for the second phase. Since only a small number of bidders might be left in the auction as the price decreases, it is preferable to switch to a sealed-bid stage to minimise the chances of collusion.