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Dutch Auction: There are different types of Auction that are available in this world at various points and types of business you are involved in.

Dutch Auction is very popular when it comes to bidding for securities in the Financial markets. And unfortunately, this is where the confusion starts.

Firstly,let's look into what a traditional auction looks like.

In a traditional, "ascending-price" auction, the bid is raised successively by buyers until new bids are exhausted. A Dutch auction reverses this process: the seller lowers the selling price in fixed increments until there is a buyer. This is known as a "descending-price" auction. It was developed in Amsterdam in the 17th century for the sale of goods in bulk, such as flowers.

Confused OR knowledge enhanced !!!! Okay, let's take an example:- Example: Four cars are for sale. The highest bids are:

A: $6000 B: $4500 C: $4000 D: $3800

In this case A, B and C would all win the bid at $4000. If only three cars were for sale, A and B would win 1 and 2 items respectively, for $4500. In the classic descending-price version, by contrast, A would pay $6000, B would pay $4500, etc.

Dutch Auction is taking its rather justifiable place in IPO offerings as well. In "Dutch Auction IPO" where instead of having a bunch of greedy investment bankers setting the price of your IPO (and, of course, pricing it below the real market price to guarantee a first day pop that the press likes so much - even though it means lost money to the company) you let everyone and anyone bid on how much they want to pay, and then set the actual IPO price based on the highest price where all of your shares will sell out. For years, this option has been around, but most companies have been afraid to try it out, believing (perhaps correctly) that they needed big name investment bankers touting the stock to guarantee that it got enough attention from the financial community.


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