Dutch Auctions In Perspective
Auctions are an open market in which the highest bidder buys the item on offer, at least in the standard auction. This is what you expect in the auctions conducted in UK, America, Asia and other parts of the world. The Dutch auction is however a departure from this rules.
In a Dutch auction, it is actually the lowest bidder that wins.
It would be good to first understand the Standard English type of auctions to fully understand the Dutch auction. In the English auction, the auctioneer who can be a private dealer of a government agency such as the police would get the items for auction.
This could be repossessed goods, lost and found but not claimed or a stock clearance. The auction date is announced and the buyers meet. The auctioneer then asks for an offer and the bids keep coming till the highest bidder takes home the goods.
In the Dutch auctions, the auctioneers do find the items in much the same way. It may be through repossessed goods or stock clearance or a government auction. The auction is also advertised and the potential buyers meet.
On the opening of the auction, the dealer calls on the highest price possible for the good. The bidders then place their bids and the lowest bid takes home the good. There is however a lower price threshold the auctioneer can sell the product also known as the reserve price for the item.
The other difference between the English and the Dutch auctions is that while the English bid can only have one winner, the Dutch bid can have more than one winner. Where there is such a tie, then the first lowest bid wins.
A practical example is where a bidder places two bids for items at $100. The next bidder places 4 bids at $110. The second bid would win the four times at $100 and the first bidder will win the one item at $100. There is therefore social justice that allows all to win.
In both auctions, there is the opportunity to participate in a bidding fee auctions also known as penny auctions. This requires that the bidder pay some fee upfront to participate in the bidding process. This is a non-refundable fee that allows you to participate in the bidding. It however does not guarantee you any winning bids.
