A Dutch Auction is probably the most difficult type of auction for people
to understand. It works like this. Let's say you have multiple identical items for sale. As in the previous example,
let's say we have 10 hammers for sale. We place these hammers for sale on eBay using a Multiple Item
Dutch Auction. In this type of auction you do not specify a Buy It Now price because there is no Buy It Now
involved. Instead, you specify a starting price (also called your minimum bid or opening bid amount) for one item.
Now, you may think by specifying an opening bid, things must work the same as a
No Reserve type auction, where people bid and the highest bidder
wins. Well, not exactly. With Ducth Auctions it works a little different. With Dutch Auctions interested buyers have
to specify two things. They have to specify what the amount they are willing to pay for one item (also called
their bid price) and how many items they want at that price. For example, one interested buyer may say he wants
3 hammers for $4 each. Just this action alone does not end the auction. Just because someone has placed a bid on
one of your items does not mean your auction immeaditely ends (as it does with Buy It Now).
Bids from interested buyers keep accruing until your auction's duration ends. All bids are added to what's
called your Bid List. Once your auction is over you take a look at your Bid List
(remember this is just a list of eBay usernames, what quantity each person wants, and what each person is willing to
pay per item). On this list, you find the lowest amount that any one person was willing to
pay (this is called the lowest successful bid). For example, here's a sample Bid List...
| John |
3 hammers |
$4 per hammer |
| Mary |
5 hammers |
$3 per hammer |
| Sue |
6 hammers |
$2 per hammer |
In this case $2 is the lowest successful bid. Do you see? It is the
lowest price that any one of the bidders was willing to pay. This price, this "lowest successful bid" is the price that
everyone pays. But to figure out who gets hammers first (and who may end up with none at all) we
look at the person with the highest bid amount. The person with the highest bid amount gets their hammers first, then
the person with the next highest bid and so on. But remember each person only pays the "lowest successful bid" amount
per item. So in this case, John placed the highest bid amount ($4) so he gets his hammers first (remember, the seller
only has 10 hammers available). So John gets his 3 hammers for $2 each. Now, the seller has 7 hammers left. Mary was
the next highest bidder at $3 per hammer. She noted that she wanted 5 hammers, and as it turns out there are at least
5 hammers left so she gets all her 5 hammers for $2 each. Now there are only 2 hammers left. Sue, the person with the
lowest bid amount of $2 per hammer, said she wanted 6 hammers. However, the seller only has 2 hammers remaining. Because
other people bid higher than her, they got preference. Now Sue only gets 2 hammers for $2 per hammer. However, if Sue
is not agreeable to that (in other words, her desired quantity, 6, is not equal to the quanity she's getting, 2) she
has the right to refuse the sale and she is not obligated to pay the seller anything. However, if she so chooses the
option is still there for her to buy 2 hammers at $2 per hammer.
In eBCalc, when you choose a Dutch Style Auction the calculator prompts you for 4 things. The first is the
number of items you are offering (your initial quantity). The next is the number of items you have sold (for example, if you
have 10 hammers for sale, and only 3 bids came in for 1 hammer each, you would put "3" in this box because 3 hammers were
sold). Next you have to tell the calculator your "Opening Bid" (this is also called your "Minimum Bid" or your "Starting
Amount"). Finally, you have to tell the calculator what the "Lowest Successful Bid" was in your Dutch Auction. Using these 4
variables, eBCalc can determine what your total eBay and PayPal fees would be for that particular auction.