Dutch auctions are special type of auction designed to handle the case where a seller has a number of identical items to sell. The seller should specify the minimum price (starting bid) and the exact number of items that are available at that price. The bidders bid at or above that minimum price for the number of items that they are interested in buying. At the end of the auction, the highest bidders earn the right to purchase those items at the minimum successful bid.
Here is an example, say there are twenty-five widgets being sold at $75.00 and forty-five bidders bid for one widget each, at $75.00. In this case, only the first twenty-five people will be the bidders who get their product successfully. Since the bid amounts are the same, the earlier bids will take merchandise.
Now, let's say that one of those people bids $100 for one widget. Since his bid is higher than all the others, he will certainly be one of the bidders to get the merchandise.
If bidders continue to bid higher than the starting price enough times, then the final bidding price will increase as well. In another instance, if less than twenty-five people bid in our example "widget" auction, only that number of widgets will be sold at the opening price of $75.00. For the selling price to increase past the opening price specified by the seller
there must be a higher or equal level of demand than the supply indicated. In our example, the selling price would only increase if twenty-four or more widgets were bid on, no matter what the amount of each bid.
In a case where a bidder bids for multiple quantities, the bidder who bid the lowest will not always get the merchandise that he/she bid on. If the bidder who made the lowest bid requested a quantity of four widgets, he/she may not even be entitled to one widget. For instance, if 12 other higher bidders each bought two widgets, there would only 1 widget left. In this case, the original bidder would only be entitled to one widget, even though he originally bid for four. The way around this problem is to ensure that you are not the lowest successful bidder. Note: A bid's value in the auction is determined by the total number of items bid on, multiplied by the bid price.
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