UK Accounting Glossary
A Dutch auction started in Netherlands’ farms, is a descending price auction for multiple identical items. A true Dutch auction starts with a prohibitive price and is bid lower. Early winners in a strict Dutch auction pay more and later winners pay less till the Dutch auction ends. A more familiar variant of Dutch auction starts with a reserve price. Bidders bid at or above that base price for the number of items they want. In this Dutch auction, successful bidders pay only the price of the lowest accepted bid. The Dutch auction in an Initial Public Offering (IPO) is actually a sealed-bid, uniform second-price variant. In the traditional IPO, the investment bank allocates shares at deflated prices to select investors who make a good profit in the secondary market. In the Dutch auction IPO, all applicants are on a level-playing field and allottees pay a price only slightly lower than the highest bid. The issuer collects more capital with a Dutch auction IPO.
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This glossary post was last updated: 9th February 2020.