Vickery Auction

An auction in which competing buyers submit sealed bids. As usual, the highest bidder wins, but for a Vickery auction, he or she pays the amount bid by the next highest bidder. Named after a Nobel-winning economist who noted that bidders can safely bid their top value, since (if they win) they will receive a surplus that depends on the next highest bid. In bidding for a contract, the winner is the company with the lowest costs (since the bidders do not have to guess at what others are going to bid). Thus, competing bidders reveal their true best price.