Last Updated on 28. April 2023 by Martin Schuster

In a Japanese auction, the price starts low. All participants raise their hands. Then, the price starts increasing in small steps. Every participant that doesn’t want to pay the price lowers his hand. Once a participant lowers his hand, he is not allowed to continue in the bidding process. The last participant who has his hand up receives the item and pays the last price.

The optimal strategy for the participants is to wait until the price reaches the willingness to pay and then leave the auction.

The effect here is that every participant reveals his willingness to pay truthfully. The only exception is the winner, where it is not clear how much he would have been willing to pay.

Property	Characteristic
Bidder	Buyer
Bid open/sealed	Open
Bids increase or decrease	Bids increase
Bid order	Price increases
Winner	Bidder with the highest bid
Final price	Price of the highest bid
End of auction	First participant bids
Strategy	Bid until willingness to pay