A sealed-bid auction is a format where each bidder submits a single confidential bid by a deadline. After the deadline, all bids are opened and the highest bid wins. No bidder sees other bidders’ numbers during the bidding window.
Sealed bidding is common in real estate transactions, government procurement, mineral rights, and some art and antiques sales. Its advantage: bidders can’t engage in tit-for-tat bidding wars and must commit to a single number reflecting their actual willingness to pay. Its disadvantage: bidders often underbid because they can’t see how aggressively others are competing.
Game-theory analysis shows that sealed-bid auctions extract less value than English auctions in most settings — bidders shade their bids below their true maximum to avoid the “winner’s curse” (paying more than the lot is worth because they bid higher than everyone else). The Vickrey auction is a sealed-bid variant designed to fix this: the highest bidder wins but pays the second-highest bid, which incentivizes truthful bidding. Vickrey auctions are rare in commercial practice but common in academic experiments.