What Type Of Auction Ends After The First Bid?
When most people think about auctions, whether in person or online like eBay, they think of an English style auction wherein the bidding opens, the bidders increase their bids, and then the bidding closes with the auctioned item awarded to the highest bidder. Really popular items in such an auction system can have dozens to hundreds of bids before the process is complete.
By contrast, a Dutch style auction offers a completely different format where instead of the bidders driving the price up and the item going to the highest bidder, the auctioneer drives the price down and the winner is the first bidder to bite. Why use a Dutch auction? Let’s use the example of a used car auction. Let’s say a company is auctioning off a car that has a reasonable value of $10,000 and they would like to get close to that value. If they auction off the car using the traditional English style, they run into two problems right out of the gate. If they set the starting price too low and there isn’t a lot of interest in the auction, then there’s a good chance that the car will get snapped up for well below value. If they start with the price too high, there’s a good chance that nobody will buy it.
With a Dutch auction, however, they can set the price well above the real value of the car—say, $16,000—and then the bidders wait for the auctioneer to lower the price. Now it becomes a game of, “Is that a worthwhile price to me?” for the bidders and there’s a good chance that somebody will place the single winning bid somewhere around the real world value of the car because, as it approaches or passes the $10,000 mark, they’ll be worried about losing their chance to own it.
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