Dutch auction
This type of price auction is most commonly used for goods that are required to be sold quickly such as flowers, fresh produce, or tobacco.
[12] A Dutch auction initially offers an item at a price in excess of the amount the seller expects to receive.
[14] A fast Dutch clock has been found to yield significantly lower bids and seller revenue when benchmarked against a first-price sealed-bid auction.
On the contrary, a sufficiently slow Dutch clock is found to be more profitable than a first-price auction.
More advanced age has a clear, statistically significant adverse impact on the overall performance in Dutch auctions.
Older bidders often end up paying too much in Dutch auctions because of their cognitive limitations and high need for closure.
This leads to participants experiencing greater uncertainty when assessing the competitive dynamics of the Dutch auction.
[17] Compared to the standard book building method, Dutch auctions have been considered for public offerings and price discovery.
Dutch auctions have been praised as being more efficient and fairer, as they can prevent underwriters from allocating stocks to known or favoured clients.
[18] The United States Department of the Treasury, through the Federal Reserve Bank of New York (FRBNY), raises funds for the U.S. government using a Dutch auction.
The FRBNY interacts with primary dealers, including large banks and broker-dealers, who submit bids on behalf of themselves and their clients using the Trading Room Automated Processing System (TRAPS) and are generally informed of winning bids within fifteen minutes.
[citation needed] For example, suppose the sponsor of the issuance seeks to raise $10 billion in ten-year notes with a 5.125% coupon.
[citation needed] A variation on the Dutch auction, OpenIPO, was developed by Bill Hambrecht and has been used for a number of US IPOs.
Auctions have been used for hundreds of IPOs in more than two dozen countries but have not been popular with issuers and thus were replaced by other methods.
SRECTrade.com uses a two-sided Dutch auction to trade Solar Renewable Energy Credits (SRECs).
Dutch auction IPOs have been criticised for the possibility of tacit collusion and cartel-like behaviour, as the issuer has discretion over price and allocation.
Holding electronic auctions reduces transaction costs substantially by relaxing physical and temporal constraints.
