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What Is a Forward Auction?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 03 September 2016
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A forward auction is a type of event in which a seller accepts bids from a variety of potential buyers, and retains the right to select any one of those bids, or to reject them all. This type of auction can take on several different forms, ranging from auctions that involve setting a minimum price and then entertaining bids that are above that minimum, or starting with a high prices that is unlikely to be met and then accepting bids that are as close to that high price as possible. One of the distinguishing characteristics is that unlike other auction types, the seller in a forward auction does have the ability to reject all bids and retain ownership of the item placed on auction if none of the bids are considered acceptable.

One of the more common examples of a forward auction is known as the English auction. In this scenario, the seller sets a minimum acceptable and entertains bids that are incrementally higher than that minimum. With this approach, all participants know the amount of each bid that is placed, although the identity of each bidder may or may not be known to anyone but the seller. Once the bidding is closed, the seller can review each bid and make a decision as to which one will be accepted. The seller may also decide all bids are unacceptable and choose to retain ownership of the item for the present time.

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A similar approach to the forward auction is known as the Dutch auction. With this approach, the price set by the owner is usually very high, and is incrementally lowered until a bid is received on the item. From there, bids may be entertained until the bidding is officially closed. From there, the seller will evaluate the bids, usually going with the one that is as close to the original price as possible.

Other forms of the forward auction are also in common use. The Japanese auction starts with a minimum bid and requires all participants to place a bid at each level of the auction or forfeit the right to continue. With a Yankee auction, sellers will offer multiple units of an item as part of the auction, with bidders specifying both a quantity and a price based on that quantity. Several forms of the forward auction work well in a virtual as well as a more traditional setting, making the use of an electronic auction to bid on property or to accept bids for goods and services from vendors and other types of suppliers very easy and convenient.

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