We are proud to announce that this week we are running our first independent auction with coffee grower, Fincas Mierisch, who are based in Nicaragua, who will be selling 20 batches of their own coffee direct to coffee roasters around the world.
We have a current relationship with the Alliance for Coffee for Excellence (ACE) for whom we run around 15 coffee auctions a year, so this is an interesting development for us to be working directly with the farm. As with the ACE auctions this Fincas Mierisch auction is something known as a Helmsman style auction, which is a type of Multi-Unit Auction and Simultaneous Auction (pdf).
The Helmsman style of auction is an interesting one in that it is an ideal way to auction items that are almost identical. In a traditional forward auction (live or timed), the bidder would have the upper hand in that they could hedge their bets and wait for another lot to come along knowing that there is more to come. However when all lots are pegged together against a 3 minute clock then the pricing outcome of all the lots is dependent upon the bidding on the auction as a whole.
How a Helmsman Auction Works
All the lots are set with a three minute countdown and once each and every lot has received an initial bid the clock starts ticking down. Every time a bid is placed on any of the lots, then the clock resets to 3.00 minutes for all lots. Bidding continues until the clock hits zero.
Now you might think that this style of auction would be over in a very short time, but you would be mistaken.
Lot Destiny and Auction Outcome
Because the outcome of each lot is dependent upon the clock and the competitive bidding on the other lots, the clock is reset many times over. This is because of the ebb and flow of the pricing. Some lots, whilst similar may be considered more valuable than others for one reason or another (i.e. quality or size) and this means some bidders will favour them. However as these item tend towards the more expensive those bidders will want to purchase fewer items. At the other end of the scale the items of lesser perceived value might be seen as a means to purchase more items by some bidders. Therefore competition at either end of the scale ensures the continuation of the auction, which in turn, provides more opportunity for pricing to rise. The final destiny of the lots will depend upon who is prepared to compromise and who is determined to get the lot(s) of their choice.
So if your targeted items were popular you may decide to pursue a twin target strategy. This means you will hedge, by spreading your bidding across the value range. However as you are outbid on your first choices the clock will be reset and so you will have to respond by either outbidding on those lots or bidding on other items. This will then re-open the door for other bidders to respond to those bids and so on.
Overall this has the effect of driving up prices up over the course of an auction that can last for over 3 hours.
Application in different sectors
It is a style of auction that operates in many variants. It can be seen in the livestock sector as well as in property development. Again in this circumstance all these items appear to the naked eye to be very similar (cattle, apartments), so the need to create a market where pricing outcome is dependent upon the overall value of the group is important.
This online auction will be running here on the 30th April, 2015 from 2pm British Summer Time (UTC + 1)/9am Eastern