What characteristic defines a first-price auction?

In a first-price auction, the defining characteristic is that the winning bidder pays exactly the amount of their highest bid. This structure incentivizes bidders to bid carefully, as they must balance the chance of winning against the amount they are willing to pay. The winning bid is not only the highest but also the amount that the winner must pay, which is why understanding the bidding strategy becomes crucial in such a format.

The mechanism contrasts with other auction types, such as second-price auctions, where the winner pays a price based on the next highest bid rather than their own. This difference in payment structure affects how bidders strategize their offers, making first-price auctions unique in terms of buyer behavior and bidding strategies.