The Dutch auction is a special kind of competition between potential buyers, different from the usual bullish game. The winner in it may not be the one who is willing to pay the maximum price for the acquisition.
The Dutch auction is based on the exact opposite logic compared to the regular auction. During the Dutch auction, prices for a lot put up for auction do not increase, but decrease.
Scheme of the Dutch auction
The logic of the Dutch auction is based on the fact that the auctioneer who implements the auction initially announces for the lot put up for auction not the minimum, but the maximum price. In theory, the auction can end right at this stage if one of the participants expresses a desire to purchase this product for the specified price. In practice, however, buyers often wait for the price to begin to decline.
This is the next stage of the auction. If the auctioneer realizes that no one was willing to pay the price indicated by him, he begins to reduce it. This is another significant difference between the Dutch auction and the usual one: in the course of the latter, the increase in price is usually the prerogative of the buyer, who thereby determines the acceptable range for the cost of the goods. In the course of the Dutch auction, the role of the buyer is to wait for the auctioneer to reduce the price of the goods to an acceptable price.
Nevertheless, it should be understood that it is still not worthwhile to delay this expectation too much: the lower the price falls, the more likely the situation becomes that there will be a buyer for whom it will be acceptable. In this case, the winner of the Dutch auction is the participant who first expressed a desire to purchase the goods at the price specified by the auctioneer.
Features of the Dutch auction
The Dutch auction process is usually highly automated. So, in the immediate vicinity of the places where the participants are located, there are special buttons that allow them to send a signal to the auctioneer if they agree to purchase the goods at the price he announced. At this point, the auctioneer immediately sees the number of the buyer who has pressed the button. This feature of the Dutch auction significantly speeds up its implementation in comparison with the conventional scheme.
The Dutch auction got its name due to the fact that it was in this country that it was very widely used. In particular, it is used in the process of organizing the sale of the famous Dutch tulips. At the same time, another feature of such an auction is that it is focused on the sale of wholesale lots of goods, which means that it allows you to sell large volumes of products in a relatively short period of time.