AW Daily - Tips & Tactics - During the Auction: Understanding Dutch/Yankee Auctions

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Before you begin selling, you need to understand the basic auction formats. The most basic form, a straight auction, is fairly self-explanatory. You list the item at whatever opening bid you want, and the highest bidder at the close of the auction wins the item. The other three common auction formats--Dutch, Yankee, and reserve--are a little more complex. With that in mind, we've put together some tips on when and why you would opt to use a Dutch auction or its close sibling, theYankee auction. Also be sure to review our tips on reserve auctions.

The Same But Different
Dutch and Yankee auctions are designed to facilitate the sale of multiple quantities of an identical item. In other words, they allow you to sell several models or versions of the same item (identical videotapes, CD-ROMs, cell phones, or baseball cards) in a single lot or auction. This way you don't have to list these items separately, which would waste time, incur fees, and be difficult to track.

With that said, there is a significant difference between Dutch and Yankee auctions. In a Dutch auction, all the winning bidders pay the same price for each quantity; the amount is determined by the lowest successful bid. In other words, even if you bid higher than the lowest successful bid, you still pay the lower amount. In a Yankee auction, the reverse is true. If you are one of the winning bidders, you pay exactly what you bid.

Quantity Counts
It's important to remember the word quantity when bidding on either a Dutch or Yankee auction. Specifically, you may not be bidding on just one item. A single bid may purchase multiple items. In addition, bidders are not limited to a single quantity. They can try to buy several quantities in a single lot. Heck, they can even try to "buy out the lot"--meaning that they buy every quantity.

Business As Usual
Both Dutch and Yankee auctions begin just like a straight auction. In fact, at the initial listing they more closely resemble a straight sale than a reserve auction. Because every item is identical, the seller can set one initial list price or opening bid for all of the items. The opening price is set and the competitive bidding begins. Unlike a reserve auction, there is no hidden price, and the buyer does not have to guess how much the seller believes the item is worth.

The Aftermath
In general, Dutch auctions cause more trouble for sellers and buyers than Yankee auctions. If there are ten items for sale in a Yankee auction, the ten highest bidders win those ten items. Also, high bidders receive priority over low bidders. As a result, if the high bidder wants multiple quantities, he or she will get them, and lower bidders will lose out. This might seem like a raw deal for other buyers, but it's great for the seller, who unloads more items at the highest price.

Dutch auctions are not as intuitive. Routinely, questions arise about how the final price was calculated and how the available quantities were doled out to different buyers. To clarify, here are some general rules.The final price in a Dutch auction is determined by the lowest successful bid. In other words, the highest bids for each of the available quantities win, and the lowest bid within that group sets the final price. For example, if four people bid on one of three Beanie Babies, the third highest bid would set the final price.

It's a bit trickier if multiple buyers are bidding for multiple quantities in a lot, such as three baseball cards in a lot of ten. In this scenario, which is commonplace, the high bidder is king. In other words, the high bidder's request for multiple quantities will be respected, while the lowest successful bidder will get the short end of the stick. (On a related note: It's not good to be the lowest successful bidder if you want multiple quantities. The highest bidder will cash in, leaving you with one item, or less than you wanted. A word to the wise: If you want more than one quantity, don't be cheap with your maximum bid in the hopes of coming in just under the wire.)

Understanding Reserve Auctions
Selling Internationally
Cancelling Auctions