Auction (Bay` muzayadah) is the offering of goods for sale in a market by a seller, with numerous buyers competing to offer the highest price. This process ends with the seller selling the goods to the highest bidder.
Islam permits selling by auctions and does not forbid it, according to the most correct and well-known opinion of the scholars. This is based on the following evidence:
Volume 3, Book 34, Number 351 :
Narrated by Jabir bin Abdullah (radiallaahu `anhu)
A man decided that a slave of his would be manumitted after his death and later on he was in need of money, so the Prophet (sallallaahu `alayhi wasallam) took the slave and said, “Who will buy this slave from me?” Nu’aim bin ‘Abdullah bought him for such and such price and the Prophet (sallallaahu `alayhi wasallam) gave him the slave.
Ibn Hajar said: Ibn Battaal replied that the words of the Prophet (peace and blessings of Allaah be upon him) in this hadeeth, “Who will buy this slave from me?” indicate that he was offering him to the highest bidder so that the needs of the bankrupt man for whom he was selling him could be met. (Fath al-Baari, 4/354).
2. ‘Ataa’ said: I met some people who saw nothing wrong with selling booty to the highest bidder. (Narrated by al-Bukhaari in Kitaab al-Buyoo’ (the book of sales), Baab bay’ al-Muzaayadah (Chapter: selling by auction)).
In an auction, the vendor offers his goods for sale, and the purchaser offers to buy them for a certain price. If the vendor does not accept that price, that is the end of the matter and there is no transaction. The he will say, “Who will offer more?” A second purchaser can then offer a higher price, and so on.
In this case, each offer is a separate and independent deal, and there is nothing wrong with that.
For more on auctions, read this.