what is a dutch auction 
a dutch auction also called a descending price auction refers to a type of auction in which an auctioneer starts with a very high price incrementally lowering the price until someone places a bid that first bid wins the auction assuming the price is above the reserve price avoiding any bidding wars this contrasts with typical auction markets where the price starts low and then rises as multiple bidders compete to be the successful buyer financial markets employ a slightly different variant there a dutch auction happens when investors place bids for a security offering specifying what they are willing to buy in terms of quantity and price the price of the offering is then determined after taking in all bids to arrive at the highest price at which the total offering can be sold dutch auctions can be used to sell treasury securities initial public offerings ipos floating rate debt instruments and other securities the term dutch auction dates to 17th century holland when the method was used to improve the efficiency of the competitive dutch tulip market investopedia daniel fishelunderstanding dutch auctions for initial public offerings ipos if a company is using a dutch auction for an initial public offering ipo potential investors enter their bids for the number of shares they want to purchase as well as the price they are willing to pay for example an investor may place a bid for 100 stock shares at 100 while another investor offers 95 for 500 shares once all the bids are submitted the allotted placement is assigned to the bidders from the highest bids down until all the allotted shares are assigned however the price that each bidder pays is based on the lowest price of all the allotted bidders or essentially the last successful bid therefore even if you bid 100 for your 1 000 shares if the last successful bid is 80 then you will only have to pay 80 for your 1 000 shares ipos are typically open to favored investors of the underwriting banks with a dutch auction individual investors can participate helping to democratize the ipo process 