When Windows Internet Properties -> Connections -> LAN Settings -> Automatic Configuration is set to "Automatically detect settings" how does Windows actually determine/discover what the settings are? Is it a network broadcast or some kind of targeted query to a server configured somewhere in the registry, or something else?
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This is because in your organization proxy settings are probably distributed through DHCP (or maybe group policy), whereas Chrome only supports the discovery through DNS described in my answer. – Tomalak Aug 08 '13 at 18:27
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Its simple: Browsers (Firefox works the same) query GET http://wpad/wpad.dat
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If a web server named wpad is resolveable, it should serve wpad.dat, a script file analog to netscape PAC files. MIME type must also be "application/x-ns-proxy-autoconfig".

Tomalak
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The IE configuration described enables a WPAD implementation. Here's the Microsoft explanation of the entire mechanism (probably too much detail for a single post).

benc
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It's a network broadcast, usually using DHCP.
That there wikipedia page should tell you all you need to know.

Ryan
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2I suppose the people who modded this down didn't know that this broken auto-configuration protocol first queries the DHCP server, and only then goes on to try the usual list of default wpad-like URLs. – Alexander Oct 11 '08 at 22:43
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Yes, DHCP is/was used by Microsoft. Other implementations vary. – Ricardo Pardini Jun 13 '13 at 07:02
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1Help! How can I see what the DHCP is broadcasting about proxies? – Colonel Panic Jul 01 '13 at 12:46
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•Go to Tools > Options > General > Connection Settings > •Set to “Manual Proxy Configuration”