What is a 'sealed bid auction'?

A sealed bid auction is characterized by its structure where bidders submit their offers confidentially. In this format, each participant prepares a bid without knowing what the others have proposed. The element of confidentiality is crucial, as it ensures that bidders cannot react to competitors' offers, effectively leveling the playing field and promoting genuine competition among bidders.

Once all bids are collected, the bids are opened at a predetermined time, and the highest bid wins the auction. This method often leads to higher offers since bidders know that their bids will remain hidden until the conclusion of the auction, reducing the likelihood of strategic bidding based on others’ actions.

In contrast, the other options do not accurately reflect the nature of a sealed bid auction. Public bid submissions undermine the concept of confidentiality integral to sealed bids, open negotiation allows continual back-and-forth which contradicts the finality of sealed submissions, and limiting bids to electronic formats excludes traditional bidding methods that may also occur in a sealed bid scenario.