An online auction is similar to a regular auction in the sense that interested buyers bid for items. The difference is found in the process, because the bidding takes place on the Internet, with the use of auction software.

Most online auctions follow the format of the English auction, in which a minimum starting price is set, and the person with the highest bid gets to buy the product or service.

In online auctions, a period of time, which may be as short as a day or as long as a week, is set. Bidders are free to bid whenever they wish during this period, and from whichever location is most convenient for them. Many bidders will usually wait for the last few hours of the last day to bid, which may be a method of keeping the final price as low as possible. Online auctions provide this kind of convenience and flexibility to interested buyers.

Under the online auction business model, the ease with which transactions can be made is particularly appealing to bidders. As such, it is easy to get a large number of bidders to bid for an item. This, in turn, also encourages more sellers to put their goods up for grabs, thus expanding the network and adding more product diversity.

One of the issues in online auctions, however, is the possibility that product descriptions may not be accurate, which may not be discovered until after it has been received by the winning buyer. Some auction winners also do not claim the item, causing frustration on the part of the seller. As such, online auction companies like eBay have created a function which allows sellers to rate buyers and vice-versa, to vouch for their reliability and make the completion of future transactions even easier.