Copyright © 1996, Agorics, Inc.
-by Kate Reynolds
One in a Series of Articles from Agorics, Inc.The descending-price auction, commonly known in academic literature as the Dutch auction, uses an open format rather than a sealed-bid method. It is the technique used in Netherlands to auction produce and flowers (hence, a "Dutch" auction). Unfortunately, the financial world has chosen to refer to another type of auction as the Dutch auction. In the financial world, the auction known as "Dutch" is what is referred to in the academic world as a uniform, second-price auction. Great confusion results. In this series of articles, the "Dutch" auction will mean a descending-bid structure.
In a Dutch auction, bidding starts at an extremely high price and is progressively lowered until a buyer claims an item by calling "mine", or by pressing a button that stops an automatic clock. When multiple units are auctioned, normally more takers press the button as price declines. In other words, the first winner takes his prize and pays his price and later winners pay less. When the goods are exhausted, the bidding is over.
Dutch auctions have been used to finance credit in Rumania and
for foreign exchange in Bolivia, Jamaica, Zambia and have also been used to
sell fish in England and in Israel.
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