A Dutch auction, clock auction or descending price auction, is a type of auction that involves bidding in a discount system, accompanied by a countdown clock. The bidding starts with a high price, which is successively reduced by a pre-agreed increment. This continues until one of the bidders stops the clock and decides to buy, paying the price at which the auction was interrupted. This bidder becomes the winner of the auction and buys a specific product or batch of goods.
The name comes from auctions introduced around 1600 on flower (tulip) markets in the Netherlands, where such a sales system was used to guarantee that perishable goods, such as cut flowers, would be sold in their entirety. This auction technique is used, for example, in the sale of fish in Israel or tobacco in Canada. This type of auction is also used, for example, by the American Treasury when selling treasury bills, or by some websites for selling Internet domains. Historic auctions known for the sale of flowers in the Netherlands were closed when the first bidder accepted the gradually reduced price with the cry "mine". In the version used in England, another participant was probably allowed to immediately place a higher bid, as at that moment the auction became an ascending price auction.
Currently, the Dutch auction in its traditional form is used very rarely. The price is no longer lowered by humans, but by automatic clocks. They were invented in the 1870s by one of the Dutch cauliflower producers. To date, auction clocks have undergone a metamorphosis, as they were initially electrical mechanisms, but now computerized (electronic) systems are used. The clock displays, among others, such data as the buyer's code, but its basic function is to determine the price. The buyer can stop the clock when the indicated price is acceptable to him by pressing a special button on the bidding device, the so-called "auction station". He wins the auction when he does it the fastest. Then he has the right to declare the quantity of the goods he wants to buy.
The Dutch auction (or auction in general) is traditionally a method of trading goods of unknown value, the price of which is almost exclusively dependent on the current supply and demand in the selected market. In addition to intermediation in the trade of fresh, perishable goods, for example: fish, fruit, vegetables, tobacco, flowers and plants, the Dutch auction technique is also used in the trade of works of art, antiques, manuscripts, numismatics, collectors' goods, luxury goods and on the market for some second-hand goods. In the case of this type of items (e.g. due to their uniqueness), it is often difficult to precisely determine their value. Typically, the concept of estimated valuation is used, as well as the so-called estimation. Both the estimated valuation and the estimate are usually given in the form of a price range. Therefore, a Dutch auction can be conducted within price ranges that are based on valuation and estimation, gradually reducing the price of the object over time.
The Dutch auction can also be a multi-item variant (continuous Dutch auction). The first winner determines the number of items they want to purchase from the pool put up for sale. If the pool of items is only partially exhausted, the auction is resumed at the price level at which it was paused.