[meteorite-list] Steve Arnold's Famous Reverse Auction

From: Darren Garrison <cynapse_at_meteoritecentral.com>
Date: Mon, 28 Apr 2008 23:41:11 -0400
Message-ID: <dm5d14134nm1do779e98i4cvn8phgd95d7_at_4ax.com>

On Mon, 28 Apr 2008 23:11:51 -0400, you wrote:

>You might get away with calling it a "Dutch Auction" by someone else's
>definition (wikipedia isn't always right? I dont know).
>
>I've always thought of a Dutch Auction as being an auction where shares
>of items are available to several people and the successful lowest
>bidder determines the price they all get making everyone above him/her
>very happy as they did not pay their maximum offer.

I thought that, too-- but it doesn't seem to be strictly true. If you are
skeptical about trusting wikipedia, how about this?

http://www.answers.com/dutch+auction&r=67

Here's something interesting:

http://sarahcarey.blogspot.com/2003_06_01_sarahcarey_archive.html

Dutch Auction

Some trivia on this term.

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.

Dutch auctions are common in less obvious forms. Filene's, a large store in
Boston, keeps in its basement a variety of marked-down goods, each with a price
and date attached. The price paid at the register is the price on the tag minus
a discount that depends upon how long ago the item was tagged. As time passes
and the item remains unsold, the discount rises from 10 to as high as 70
percent.

It is believed that the English system may be inferior to Dutch in one area. The
key to any successful auction (from the seller's point of view) is the effect of
competition on the potential buyers, and in an English auction, the underbidder
usually forces the bid up by one small step. The winner may end up paying well
under his valuation and thus the seller does not receive the maximum price.

However, in the Dutch system, if the bidder with the highest interest really
wants an item, he cannot afford to wait too long to enter his bid. That means he
might bid at or near his highest valuation. (source)

and from Amazon...

Dutch Auctions

In Dutch auctions, the seller lists a quantity of items for sale--five Barbie
dolls, for example, or 20 rocks that bear a striking resemblance to George
Washington.

Bidders submit both how many items they wish to buy and how much they want to
bid for each one. The final per-item price in a Dutch auction is determined by
the lowest of the winning bids. The bidder who submits the highest of the
winning bids is entitled to the quantity he or she specified, but at the lower
per-item price. Remaining quantities of the item are used to fill other winning
bids in the order of their bid price. Confused? This example should clear things
up:

Joe and Sue are the individual high bidders in a Dutch auction for lamps. Joe
placed a bid for 30 lamps at $20 each. In a subsequent bid, Sue offered to buy
10 lamps at $65 each. Because Sue's high bid ($65) is greater than Joe's high
bid ($20), Sue is entitled to all 10 lamps she requested at the $20 price (the
lowest winning bid). Joe is entitled to the remaining 20 lamps at $20 each, even
though his original bid was for a quantity of 30.

There is usually more than one winner in a Dutch auction. Winners who are not
the top bidder may win fewer items than requested in their original bids, but
winning bidders are still bound to purchase the smaller number of items.
Received on Mon 28 Apr 2008 11:41:11 PM PDT