Dutch auction is just one of the many types of auctions. It is actually another variation of a traditional auction. This online bidding gets its name after it was used for centuries by flower vendors in Holland to sell their goods.
Normally, when people think of an auction, the first thing that comes to mind is bidders competing and raising the price of an auctioned item. This process ends when one wins and pays the highest bid. But, there is also the so-called second price auction in which the winner pays the highest losing price.
Dutch auction on the other hand, is an ideal alternative to a more traditionally used approach. It increases competition among bidders with its descending-price structure. Recently, this auction version was used by sellers and creditors to sell their products.
But, have you figured out how this type of online bidding works? If you are thinking of participating in this kind of auction, you need to make sure you are indeed joining a real Dutch auction. You should know that it is much different from second price auction of which it is often mistakenly referred to.
In a Dutch auction, the seller opens up a bid at a very high price. In fact, the initial price is even higher than the item’s value. In this type of online bidding the price is subsequently lowered, until a bidder accepts the current price. The winner then pays that price.
Unlike in other types of auctions, bids in Dutch auction are not sealed. In this kind of online bidding, participants or bidders must know the amount of the bids. This is purposely made to increase the level of competition among bidders. Once they see the decreasing-price structure, it prompts them to take appropriate and fast action to end the bidding.
With the decreasing-price scheme of this auction, it may seem that the seller is losing money. This is often the misconception about this kind of online bidding. In reality, sellers in this type of auction actually make more money than the traditional auction with ascending-price structure.
It is true that bidders in the traditional ascending-price auction raise the price, but they seldom have it raised above the items actual value. Bidders in this kind of auction need have to act fast because they know when the auction will end.
However, in a Dutch auction, bidders need to act fast because they do not have any idea when the auction will be over. Thus, it gives some assurance that the winning bidder pays the item at or even above its actual value even if the price is lowered.
These are just a few of the many significant points that differentiate this type of auction from others. The information in this article is more than sufficient to help you decide which type of auction you need to participate in.