So, Dutch auction is held when a seller has multiples of the same product and wants to sell them to the highest bidders and doesn?t want to use the fixed price format. For the set price of the seller, all winning bidders will pay the exact same price, no matter what their bid was. The price of the product at auction will be the lowest bid that is successful or a winning bid. The easiest way to take over this Ducth auction is to watch the auction current price and the price all will pay if the auction ends right then. So, no one pays more than anyone, no matter what they bid.

But, a potential problem with the dutch auctions is that investors have an incentive to bid higher than the fair value of a stock so that they can be assured of getting shares to buy. If only a few people bid high, they would still only pay the market clearing price determined by the vast number of presumably more investors, since the price would be set by the lowest bid. There is another factor called the ?winners curse? that can lead to depressed prices after the initial offering.

The top bidders in the dutuch auction may realize that they bid more than what other bidders believe the shares are worth. So, if the winners start to worry about the share price bid, they may sell shares immediately after the ducth auction. This will cause a drop in the price and for more thoughtful investors, the fear of the winners curse could lead them to moderate their bids in advance. Anyway, at the end of the business, this dutch option is best preferred for sellers on eBay!!