Normal auctions sell objects individually or by lots, a lot could be an individual object or a number of objects sold as one. Bidding starts low with each higher bid replacing the previous lower bid until the last and highest bid wins. The successful bidder taking possession of the individual items or items in the nominated lot.

This is okay if you auction the objects by lot or individually, but consider the situation where you have many identical items and you would prefer to sell them individually rather then in lots. What is the solution? A Dutch Auction is the solution.

Dutch auctions differ significantly from normal auctions in several ways. Instead of the bidding starting low and rising the auctioneer starts the action with a high starting bid and then lowers the bid amount in stages. Buyers wait until the bid falls to what they are willing to pay and indicate acceptance of the price to the auctioneer. The first bid during a Dutch auction is the successful one. The Auctioneer asks for the quantity of the goods the successful bidder desires, the successful bidder may take all items or just the one. So the bidder risks when to bid, just how low will the price go before someone else will make a bid? By bidding first the bidder has the privilege of deciding how many of the items at the current bid they will take possession of.

In a normal auction this would be the end of the bidding until the next auction, not so here. Should the successful bidder not take all the items on offer, the auctioneer raises the bid by a previously decided amount and bidding starts all over again. So the next successful bidder may actually win with a lower bid in the second round of bidding than the first successful bidder. Pretty cool, eh?

This is the feature that injects much tension and excitement into a Dutch auction.

This form of auction also has a reserve price function. Should the bidding fall to the reserve, the goods are offered at that amount. Should no one offer a bid the goods are passed in to be auctioned at a later date.