A Guide To Dutch Auctions

Most of us are familiar with the traditional auction process

. The idea is that the item is presented for sale at a low starting price. Those interested in acquiring the item will then bid on it, beginning with the starting price and going higher until the auction ends. In this type of auction the highest bidder will be the winner.

However a Dutch auction could not be more different from the traditional format. Instead of potentially having a series of bidders all leapfrogging each other to grab the highest bid, there will only be one bid, i.e. the winning one. This is because no one makes a bid until the price reaches a level one person is prepared to pay.

How does this work in reality?

Let's suppose you have an item you want to sell on one of the online auctions that uses the Dutch auction process. You decide to put the item up for sale for 150. The auction goes live and people start to find it and to consider the price. No one is prepared to pay that much for the item so you reduce it to 140. Once again there are no offers so you bring down the price to 130.

There is no telling when a bidder will accept the lowered price so you may have to wait a while and reduce the price a few times before you get the result you desire. Perhaps on this occasion the price will be reduced to 90 before someone finally accepts that amount and buys the item.

Why don't people wait for the price to go very low so they can buy something for a bargain price?

There is a degree of risk involved in on dutch auction sites as far as the bidder is concerned. Let us suppose you are interested in bidding on a Dutch auction. Even if you know how many other people are interested in the same auction, there is no way of telling what price someone else will be prepared to pay to secure the item being offered for auction.

This means that if someone starts an item at 150 and you are prepared to pay 90 for it, you run the risk of someone else being prepared to pay 100 or more for it. If it reaches 100 and another person steps in to place that bid, you will lose out on the item. So you can see a Dutch auction can be just as exciting for the bidder and the person offering the item for sale as a traditional auction can be.

Many people consider dutch auctions to be fairer than traditional auctions for the buyer and seller because the final sales prices are generally closer to what may be considered the items true market value.

Dutch auctions are commonly used when service providers are bidding for business, and the buyer will commonly go with the seller who submits the lowest offer or which provides the best value.

Why aren't Dutch auctions more popular?

This is a valid question but there is a good answer. The truth is that because the price can keep going down for a significant period before someone accepts the bid, it really only works well with pricier items. If you started an item at 10 you clearly do not have as far to drop the price than you would with an item with a starting price of 200.

by: Oliver Brand

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