Auctions serve a valuable function in society, offering a method, and often a location, whereby people have an opportunity to trade items of all types, without being required to set the price beforehand. This reflects the nature of the value of a commodity, which economists have long argued over.
The auction system implies that the value, and thus the price that will be paid, for an item is determined not only by the intrinsic characteristics of the object, but also by the way it satisfies those who desire to possess it. While supply factors do come into play, such as the number and availability of such items, the cost of production becomes unrelated to the price that buyers are willing to pay under conditions where the item is scarce, unique, or has value based more on historical, emotional, or other human-related characteristics, such as items that belonged to famous historical persons. Thus, the auction allows buyers and sellers of objects, particularly those that are unique or have worth due to characteristics other than cost of production, to determine the price of such objects based on their subjective value.
The auction price is also affected by the number of interested buyers, since they must bid against each other. Thus, if only one interested buyer appears they may offer a low price initially. In order to protect the interests of the seller, many auction systems allow the seller to predetermine a minimum price, which if not met releases them from any obligation to sell. Thus, in many ways, the auction system allows trade to find its equilibrium in a natural way, one that satisfies both buyers and sellers.