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Learn About Dutch Auctions


 

A Dutch auction is a type of online auction selling format a seller might use if he or she is listing multiple identical items for sale.

In a Dutch auction, buyers specify the quantity of the items they would like to purchase and the amount they are willing to pay for each one.

Winning bids are determined by multiplying the bid price by the number of items bid on.

A Dutch auction is also known as a multiple item auction.

Read on to learn more about how Dutch auctions work.

Dutch Auction Example

The seller has, for example, 100 staplers up for auction. All winning bidders will pay the exact same price, no matter what their bid was. The price of the stapler will be the lowest bid that is successful or a winning bid. The top 125 bids would be considered successful bids.

Each stapler is considered a separate bid. One bidder bids on five staplers = five bids.

Two different things can happen; 100 staplers available, starting price is $4. A total of 90 staplers have been bid on, with bids ranging from $4 to $10. All bidders will get the staplers for $4. Each and all bids were successful and winning bids. 100 staplers are available, but there have been 150 bids, ranging from $4 to $10. The top 100 bids are the only ones considered and the lowest of THOSE 100 bids will be the successful bid price.

The easiest way to keep an eye is watch the auction current price, that’s the bid for the 100th stapler and the price all will pay if the auction ends right then. No one pays more than anyone else, no matter what they bid.

Fixed Price: The seller has 100 staplers, all the same, and is willing to sell them for $4 each. They would be listed as a quantity of 100 and a price of $4. Buyers can buy any number that is still available, at the $4 price and at any time during the auction.

Remember, the higher bidders get first dibs on multiple quantities. So if the lowest bidder wants multiple quantities of the item on the block, he or she may find that there aren’t enough to go around. If only a partial quantity is available, the bidder can officially walk away from his or her bid.

When a potential buyer bids on multiple copies of the item, those toward the end of the list may not get the quantity they desire. Still using our T-shirt example, if the top bidder wants three shirts, the remaining shirts are distributed among the next seven bidders-leaving the last or lowest two bidders out in the cold.

Tips on Bidding in Dutch Auctions

Dutch auctions actually benefit the buyer more than any other type of auction by letting higher bidders pay the lowest bid price. Should you bid on a Dutch auction? Why not? If someone is selling something you want, by all means, bid!

How much should you bid? Ah, there’s the issue. I actually like bidding on Dutch auctions later in the game so that I can get a handle on how many other bidders I’m competing with. The number of bidders versus the quantity of items available determines my strategy:

If the seller has a large quantity of items and a small number of bidders, bid the minimum. In this scenario, everybody wins because there’s more than enough merchandise to go around.

If the seller has a small quantity of items and a large number of bidders, you probably should bid higher than the minimum. In fact, in this scenario, treat it like a normal auction and bid the highest amount you’re willing to pay.

The worst thing that could happen is you lose the auction; the second worst is that you’re a winning bidder and you have to pay your maximum bid; the best scenario is that you’re a winning bidder but get to pay a lower amount (because of a lower bid entered by another winning bidder).

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