Dutch Auction

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Description of Dutch Auction. Explanation.




Dutch Auction at FloraHolland in The Netherlands with 3 auction clocksDefinition Dutch Auction. Description.

A Dutch Auction is a method of selling and buying whereby the auctioneer begins with a high asking price which is lowered until some participant is willing to accept the auctioneer's price, or a predetermined reserve price (the seller's minimum acceptable price) is reached.

Typically the seller has multiple, identical items listed for bidding and the price is gradually lowered until it meets an acceptable level to enough buyers for the entire offering to be sold.

This type of auction is convenient when it is important to auction goods quickly, since a sale never requires more than one bid. The Dutch auction is named for its best known example, the Dutch flower auctions. Also known as clock auction.

Dutch auctions are a competitive alternative to a traditional auction, in which bids of increasing value are made until a final selling price is reached, because due to ever-decreasing bids buyers must act decisively to name their price or risk losing to a lower offer.

In corporate finance, the method is an interesting alternative to the traditional negotiated pricing process used by underwriters to set IPO prices. The method was successfully used by Google for its 2004 Initial Public Offering.

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