Updating the reserve price in common value auctions
This is in contrast to typical options, where the price rises as bidders compete.
If a company is using a Dutch auction 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.
Prospective investors submit bids electronically through Treasury Direct or the Treasury Automated Auction Processing System (TAAPS) which accepts bids up to 30 days in advance of the auction.
Suppose the Treasury seeks to raise million in two-year notes with a 5% coupon.
The biggest benefit of such auctions is that they are meant to democratize public offerings.
From 1980 - 2001, the pop in first day trading was 18.8%.
A Dutch auction also refers to a type of auction in which the price on an item is lowered until it gets a bid.
The first bid made is the winning bid and results in a sale, assuming that the price is above the reserve price.
In this, a stock's price may crash immediately after listing when investors, who had bid a higher price earlier, realize that they may have miscalculated or overbid.
Such investors may try to sell the tock to get out of their holding, leading to a crash in the share's price.