Bidding in the Dutch Auction

In Dutch auctions, the auctioneer sets an initial high price and then gradually decreases the price for the commodity until one of the bidders accepts the current price. Technically speaking the Dutch auction is a descending auction with a first-price mechanism, meaning that the buyer pays the price she actually bid for the good. The Dutch auction originally obtained its name from the flower market in Amsterdam, which is based on that specific auction mechanism. The Dutch auction is especially interesting due to its theoretically equivalence to the first-price sealed-bid auction, in which each of the participants submits exactly one sealed bid and the highest bidder gets the commodity for the price she has bid in the first place. Although the mechanisms are, independent of the participants’ risk attitude, theoretically equivalent, they systematically lead to different market outcomes in experiments