Dutch Auction

[HGKinsey]

What is a Dutch Auction?

[paulz]

HGKinsey Go to http://www.ebay.co.uk/help/basics/f-format.html and scroll down

[seb brown]

A dutch auction is a certain type of auction, different to the traditional format, such as ebay or an auction at Sotherby's etc, where the price gradually goes up and increases incrementally. In a dutch auction, the auction is timed. The price starts high, then reduces as the clock ticks down. The auction is basically a waiting game. The first person to bid wins, and its just a question of judging how long you think you should wait, and how long you are prepared to risk it for, as some one else could jump in at any time. You can either bid early and pay a high price if you urgenty want the item, or can wait for the price to tick down but run a risk of being beaten to it. Dutch auctions are use for high volume goods, where the bidder is buying on price. The name comes from auctions of flowers in holland, where bidders would be buying tulips in enormous volumes.

[sft42]

There are different types of auction that come under the "Dutch Auction" banner that I have come across (also sometimes called "option" auctions) in my years of auction buying and selling but most popular seems to be not the above but the following method:

The Dutch Auctions are a special auction format where a seller has multiple, identical items he or she wishes to sell. The seller specifies the starting bid and the number of items available. Bidders bid at or above that minimum for the number of items they are interested in purchasing. At the close of the auction, the highest bidders purchase the items at the lowest successful bid.

For example, imagine there are 10 TVs being sold at �100. 25 people bid �100 for one TV each. In this case, only the first 10 people will be the successful bidders, since the bid amounts are the same, and earlier bids take precedence.

[sft42]

Now, say that one of those people bid �150 for one TV. Since her bid is higher than all the others, she will certainly be one of the successful bidders. The other 9 TVs will be claimed by the earliest bidders who bid �100, and the final price for each TV will be �100 byall the bidders.

If enough people bid above the minimum bid, the final price of the item will increase as well. On the other hand, if less than 10 people bid in our example, then only that number of TVs will be sold at the opening price of $100. For the selling price to increase past the opening price specified by the seller, there must be an equal or higher level of demand than the supply indicated. In our example, the selling price would only increase if 11 or more TVs were bid upon, no matter what the amount of each bid.

In the case of multiple lots bid for by a bidder, the lowest bidder may not earn the right to purchase the complete number of lots since there may only be one left by the time the higher bidders have been processed. In other words, if the lowest bidder requested an amount of 3 TVs, she might only be allowed to get one TV, since 9 other TVs could be allocated to higher bidders. The only way around this problem is to ensure that you are not the lowest bidder. In some cases, a bidder may reserve the right to refuse purchase of a partial lot amount. In that case, the seller may skip that bidder and move on to the next one, if any.

[melandraf]

In a Nutshell - They are hideous - steer well clear and keep your money......

[seb brown]

Not wanting to cause conflict, but i think what sft42 is describing is a kind of Reverse or Sealed Bid auction, not specifically a Dutch one. The description does sound like a "descending-bid" auction, which a Dutch Auction is a type of, but not as sft42 described. The only reason i'm saying this is because had to learn all about the wonderful world of Dutch Auctions and such similar for a final exam couple of weeks ago. Any way, according to the definition i've got from the course text book, unless you are doing an auction for business or for a liquidating company, you shouldn't have anything to do with Dutch Auctions.