The Auction business model is based on participative pricing: in other words, the price of a product is not determined solely by the vendor, but rather by the buyers. The process of determining a price begins with a prospective buyer placing a bid based on his or her willingness to pay. When the auction concludes, the customer who placed the highest bid is contractually obligated to purchase the item or service. 
The primary advantage for buyers is that they are never required to spend more than they can afford or are willing to pay. The vendor benefits because products can be distributed more efficiently across the market. This feature is especially advantageous for extremely rare or heterogeneous products for which there are no reference prices or for which demand is difficult to estimate. To ensure that vendors are not compelled to sell their products below an acceptable threshold, it has become customary in some cases to set a reservation price with the selling price for a given item or service not becoming fixed until the auction concludes.

When and how to apply Auction:

The Auction pattern's allure and potential are based on its adaptability and breadth of implementation possibilities. You can either sell your own products or create a marketplace for sellers and buyers that is open to all types of products (like eBay) or is niche-focused. The Auction business model is extremely scalable and capable of serving millions of users continuously. These users are invariably benefited by the network effect created by this scenario. The pattern is effective when an auction increases transparency for standardized products such as C-parts or raw materials. Auctions can also be used to sell highly specialized products, provided that the auction site receives enough traffic.

Well-known companies that use this pattern are Google and Amazon.