Dutch Auctions

In Dutch Auctions, bidders compete for multiple quantities of a single item--five footballs, or 20 ball point pens.

Bidders submit both how many they wish to buy and how much they want to bid, per item. 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? Reading this example will clear things up:

Bob and Betty (not their real names) are the individual high bidders in a Dutch auction for 30 footballs. Bob placed a bid for 25 footballs at $5 each. In a subsequent bid, Betty offered to buy 10 footballs at $15 each. Because Betty's high bid-per-item ($15) is greater than Bob's high bid-per-item ($5), Betty is entitled to all 10 footballs she requested at the $5 price (the lowest winning bid). Bob is entitled to the remaining 20 footballs at $5 each, even though his original bid was for a quantity of 25.

If Bob wished to bid again, he could do so by increasing either the quantity or the bid amount of his original bid. Bidders may not reduce either element of their bid.