2.  Purpose of this presentation is to provide a overview
of DUTCH AUTION, its purpose, and scope in current
economy

3. AUCTION ????
 Auction - comes from Latin word auctus to mean
increase.
– Not every auction has increasing prices.
 Among one of the first engaging tales - Sale of Roman
empire to the highest bidder in 1764.
 A market institution that works on the concept of
competition.
 Natural discovery of price and buyers.
 Types of auction – English Auction, dutch auction, All pay
Auction, Bidding Fee Auction.

4. Types of Auction
 Primary type Auction
─ English Auction: Participants bid openly against
one another, with each subsequent bid higher than
the previous bid.
─ Dutch Auction: In Dutch auction the auctioneer
begins with a high asking price.
─ Commodity Auction: sell more than one identical
item at the same time.

5. Types of Auction
 Secondary type of Auction
─ All pay Auction: is an auction in which all
bidders must pay their bids regardless of whether
they win.
─ Buyout Auction: is an auction with a set price
that any bidder can accept at any time during the
auction.
─ Combinatorial Auction: is a type of smart market in
which participants can place bids on combinations of
discrete items.

6. DUTCH AUCTION -
INTRODUCTION
 Meaning - In a Dutch auction, the item being sold is
initially offered at a very high price.
 Bids are not sealed.
 A type of auction in which the price on an item is lowered
until it get its bid.
 The first bid made is the winning bid and results in a
sale, assuming that the price is above the reserve price.
 This type of auction is convenient when it is important to

auction goods quickly.

7. FEATURES OF DUTCH AUCTION
 The auctioneer begins with a high asking price.
 This is also known as a "clock auction" or an open-
outcry descending-price auction.
 Price get lowered until some participant accept it.
 A sale never requires more than one bid.

8. WHY AND WHY
NOTS????????

9. WHY DUTCH AUCTION?
o It is fastest way to dispose of materials:
 Bidding is easier
 There is typically only one bid
 Bidders typically bid earlier
o Dutch auction tend to generate higher prices.

10. Why not Dutch Auction?
 Overhead of time and infrastructure.
 Unnecessarily increases the bid price.
 It creates confusion among bidder.

11. auction setting
 Forward auctions: a seller selling items to buyers
(bidders).
 Reverse auctions: a buyer buying items from
sellers/suppliers (bidders).
 Both the settings are natural transpose of each
other.
 winning participant pays the last announced price.

12. AUCTION IN PRACTICE
 Transfer of assets from public to private: Sale of
industrial enterprises in Eastern Europe,
transportation system in Britain, timber rights all over
the world, and off-shore oil leases.
 Auction of spectrum rights worldwide - US, Europe,
and even India.
 Internet auctions of consumer goods (amazon.com,
ebay.com etc.). Google's Adword auctions.
Procurement auctions - freemarkets.com (now Ariba),
GM and IBM's sourcing solutions.

13. PROCESS
 The item being sold
is initially offered at a The price is lowered
very high price. in decrements until a
bidder accepts it.
Bidder
who
accepts
pays that the
decided price current
for the item. price
wins
the
auction

15. EXAMPLE
 suppose a business is auctioning off a used company
car
 the bidding may start at $15,000.
 The bidders will wait as the price is successively
reduced to $14,000, $13,000, $12,000, $11,000 and
$10,000.
 When the price reaches $10,000, Bidder A decides to
accept that price and, because he is the first bidder to
do so, wins the auction and has to pay $10,000 for the
car.

16. Dutch auction is not a Second item
Auction
A Second Item
Dutch Auction Auction
 Seller offers one time at a  Seller offers more than one
time to sale. identical items for sale.
 Only one bidder can win.  Winner can be more than
 Winning participant pays the one.
last announced price.  All winning bidders need to
 A sale requires only one bid. pay only the lowest qualifying
(successful) bid.
 A sale requires more than
one bid.

17. DUTCH
AUCTION IPO’S

18. The “Dutch auction” is
another mechanism for an
IPO
 Nor many do this
 Most famous: Google,
August 2004

19. Dutch Auction
 Seller announces total shares to be auctioned
(Qshares)
 Potential buyers submit bids for (Shares, Prices)
 Auction moves price down until
Shares demanded above this price =Qshares

20. Dutch Auction Example
 Qshares = 10
 Bids
 2 at $10
 1 at $9
 3 at $8
 4 at $7
 2 at $6
 4 at $5
 Sell 10 to first 4 bidders at price = $7

21. Dutch Auction Picture
IPO
price
DEMAND
SHARES
OFFERED

22. DUTCH AUCTION SHARE
REPURCHASEs
 It is introduced in 1981.
 allows firms an alternative to the fixed price tender
when executing a tender offer share repurchase.
 It offer specifies a price range within which the
shares will ultimately be purchased.
 The purchase price is the lowest price that allows
the firm to buy the number of shares sought in the
offer.

24. THE END
THANKING
YOU…….