What Is A Dutch Auction?

In any normal auction the bidder raises the bids or selling price as people continue showing interest in the item of sale. He finally sells the item at the highest possible price but usually begins the bidding either from a marginal price compared to value or a price fixed by the seller. A Dutch auction, also known as a descending price auction, is the bang opposite. In this sort of auction the price goes from high to low. The auctioneer starts from a high or inflated price and starts to lower the price gradually and stops as the first person shows interest in buying at that price. Usually a lower limit is set by the seller below which there is no sale. In the Netherlands, the Tulips are auctioned off in this way; it is also called a Chinese auction. It is supposed to be a quicker method of auctioning but studies suggest that the party selling is more so at a loss.

It is also used in initial public offerings by companies, the best example being Google and also by the US treasury. Certain online auctions also take the form of Dutch auctions.