Bidder: What it Means, How it Works, Types

What Is a Bidder?

In a market, a bidder is a party offering to buy an asset from a seller at a specific price. A bidder can be an individual or organization, and the potential purchase can be part of a multiparty transaction or an auction. In most cases, the party selling the asset chooses the bidder who offers the highest price.

Understanding Bidders

Bidders are an essential component of a functioning market. By indicating the amount they are willing to pay for something, bidders signal to the market whether demand is increasing or decreasing. High demand may prompt more sellers to enter the market and can increase the price that sellers are able to garner.

In the case of the stock market, investors bid on how much they are willing to pay for a company’s shares. Share price volatility depends on the number of buyers and sellers looking to conduct a transaction, with the presence of more buyers than sellers often leading to an increase in price.

The market for mergers and acquisitions is also a bidding market. Companies negotiate how much they are willing to pay to acquire another business. In turn, those other companies can reject the bids they are offered if they find the price too low.

Types of Bidding

Probably the most common type of market in which there are bidders is an auction. An auction is a public sale in which goods or property are sold to the highest bidder. During an auction, there are several different methods for how a bidder can place their bid.

Unique Bidding

In this scheme, the bidder who gives the most unique bid wins the bidding. For example, if Users A, B, C, D, and E are bidding for the same product, and User A bids $5, User B bids $5, Users C and D bid $2, and User E bids $3, then User E wins the bidding because their bid was unique.

Dynamic Bidding

A bidder can set their bid for the product. Whether the bidder is present or not for the bidding, the bidding will automatically increase up to their defined amount. After reaching their bid value, the bidding stops from their side.

Timed Bidding

With timed bidding, a bidder bids at any time during a defined time period simply by entering a maximum bid. Timed auctions take place without an auctioneer calling the sale, so bidders don't have to wait for a lot to be called. This means that a bidder doesn't have to keep their eye on a live auction at a specific time. A maximum bid is the highest a bidder is willing to pay for a lot. An automated bidding service will bid on their behalf to ensure that their bid meets the reserve price, or that they always stay in the lead, up to their maximum bid. If someone else has placed a bid that is higher than the maximum bid, the bidder will be notified, allowing them to change the maximum bid and stay in the auction. At the end of the auction, whoever's maximum bid is the most wins the lot.

Live Bidding

This type of bidding is a traditional room-based auction. These can be broadcast via a website, allowing viewers to hear live audio and see live video feeds. The idea is that a bidder places their bid over the Internet in real-time. Effectively, it is like being at a real auction, in the comfort of the home. Timed bidding, on the other hand, is a separate auction altogether, which allows bidders to participate without the need to see or hear the live event. It is another way of bidding that may be more convenient for the bidder.