Dutch Auction

A Dutch Auction is a price discovery mechanism where the auctioneer begins with a high asking price that progressively decreases until a participant accepts the current price or a predetermined reserve price is reached. In procurement, this format is sometimes used for reverse scenarios where suppliers respond to decreasing price points.

Key characteristics of Dutch auctions include:

• Sequential price announcements at decreasing levels
• First participant to accept a price wins the auction
• Time pressure as prices decrease toward acceptable thresholds
• No visibility into other participants' willingness to bid
• Quick resolution once a bidder agrees to a price point

Procurement teams may employ Dutch auction formats when seeking quick supplier commitments, testing price thresholds in new markets, or when traditional reverse auctions haven't yielded desired results due to limited competitive dynamics among suppliers.