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  •  Purpose of this presentation is to provide a overview of DUTCH AUTION, its purpose, and scope in current economy
  • 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.
  • 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.
  • 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.
  • 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.
  • 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.
  • WHY AND WHY NOTS????????
  • WHY DUTCH AUCTION?o It is fastest way to dispose of materials:  Bidding is easier  There is typically only one bid  Bidders typically bid earliero Dutch auction tend to generate higher prices.
  • Why not Dutch Auction? Overhead of time and infrastructure. Unnecessarily increases the bid price. It creates confusion among bidder.
  • 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.
  • 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.). Googles Adword auctions. Procurement auctions - freemarkets.com (now Ariba), GM and IBMs sourcing solutions.
  • PROCESS The item being soldis initially offered at a The price is lowered very high price. in decrements until a bidder accepts it. Bidder who acceptspays that thedecided price currentfor the item. price wins the auction
  • 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.
  • Dutch auction is not a Second item Auction A Second ItemDutch 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.
  • The “Dutch auction” isanother mechanism for anIPO Nor many do this Most famous: Google,August 2004
  • 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
  • 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
  • Dutch Auction PictureIPOprice DEMAND SHARES OFFERED
  • 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.