Auction formats: timed, Dutch and reverse auctions, and when to use each

The three formats side by side

The names vary, the mechanics do not. “Timed”, “English”, “ascending” and “forward” auction all describe the same thing: bids go up. The other two are clock auctions, where the price moves by itself and a single acceptance ends the sale.

One note on the name. In finance, “Dutch auction” also describes a way of selling shares to many buyers at one clearing price. That is a different mechanism with the same name; this guide is about selling and buying goods.

The timed auction: how it works and the parts worth having

A lot opens with a start price and a closing time. Bidders raise each other in increments, and when the clock runs out the highest bid wins, provided it has reached your reserve. The reserve stays hidden; bidders see only that it has or has not been met. It is the format every bidder already understands, and the one to choose whenever you do not know what a lot is worth: the bidders find out for you.

The parts that make it work online:

• Soft close. A bid in the last minutes extends the closing time, so a lot cannot be sniped in the final second and the bidder who wants it most has time to answer.
• Automatic bidding. A bidder leaves a maximum in advance and the site bids the smallest step needed on their behalf. The maximum is never shown to anyone, you included.
• Absentee bids. The same thing for bidders who will not be online at the close.
• Reserve price. The least you will accept. Set it at that figure, not at the price you hope for.
• Buy Now. A fixed price at which a buyer can end the auction early. Useful for stock you would be glad to move at a known price.
• Make an Offer and second chance. A lot that closes unsold can take offers afterwards, and a lot that had bids but missed its reserve can be offered to one of those bidders at their own bid or less.

The weak point of a timed auction is time: a sale runs for days and almost everything happens in the last hour. The closing schedule, covered below, matters more than the start price.

The Dutch auction: a falling price clock

You set a start price, a floor and a start and end time. When the lot opens the price begins to fall, evenly, from the start price towards the floor; the lot page shows the current figure and updates it every second. The first registered buyer to accept the price shown buys the lot at that price, and the sale is over. If the clock reaches the floor with no buyer, the lot ends unsold. Buyer and seller are emailed the agreed price, and the buyer pays as for any other lot. You may add a buyer’s premium and require a card on file before anyone can accept.

Three settings decide everything:

• The start price should sit well above what you expect. If someone accepts in the first minute, the start was too low, and you will never know what they would have paid.
• The floor is your reserve: the least you will take. The clock stops there, so set it at the real figure, not a hopeful one.
• The duration sets the speed of the fall. The drop is linear: a start price of 900 falling to a floor of 300 over an hour drops 10 every minute. Short clocks keep people watching; a price that falls for three days is watched by nobody.

A Dutch sale rewards an audience that arrives at the same moment, so announce the start time and share the lot page beforehand. What a Dutch lot does not have: there are no bids, so there is no soft close, no automatic or absentee bidding, no Buy Now and no second-chance offer. One acceptance, at the clock’s price, decides it.

Where it fits: flowers, fish and produce that must sell today; a fixed quantity of stock that has to be gone by the end of the week; clearance where speed is worth more than the last few percent; and the lot for which you expect one keen buyer and want a fast, clean sale. Where it does not fit: a lot that several people want. In a timed auction they bid each other up; in a Dutch auction the first one to crack pays the clock’s price and the others never get to bid.

The reverse auction: when you are the buyer

A reverse auction turns the clock around. You describe what you need, set a start price, a ceiling and a start and end time, and the price you are offering rises evenly from the start price towards the ceiling. Suppliers register on your site, watch the price climb, and the first one to accept supplies at the price shown. The sale ends at that moment and both of you are emailed the agreed price. If the clock reaches the ceiling with no supplier, there is no deal. Share the lot page with the suppliers you want to take part; it is also listed on your site like any other lot.

• The start price should be low enough that no supplier accepts it at once, or you learn nothing.
• The ceiling is the most you will pay. The clock stops there, and a supplier who waits for it gets it, so set it at your real limit.
• The specification does the work that bidding cannot. The site compares nothing but price, so quantity, quality, delivery place, delivery date and payment terms must be written on the lot so that every supplier is accepting the same thing. A vague specification is accepted quickly and argued about afterwards.

What a reverse auction on an auction site is not: it has no sealed bids, no bidding rounds and no supplier scoring. It fixes a price; the order, delivery and payment are then settled between you and the supplier under your own terms, outside the site. It fits a well-specified, comparable purchase with several suppliers who can all deliver the same thing: fuel, feed, packaging, printing, transport, a batch of standard parts. Check the procurement rules where you buy before using one, especially if you buy for a public body.

Which format for which sale

• More than one person may want it. Timed auction. Let them compete.
• You do not know what it is worth. Timed auction with a low start price and a reserve at your real minimum. The market tells you.
• It must be gone by a date, and you know your floor. Dutch auction with a short clock and an announced start.
• The same kind of goods, sold every week, to buyers who know the routine. Dutch auction. Regulars learn the clock and arrive on time.
• You would take a fixed price today. Timed auction with Buy Now.
• You are buying something precisely specified from several suppliers. Reverse auction.
• A single sale with both. Most lots timed, a few Dutch, is a normal mix. Each lot page says which format it is, so bidders are not confused, but say it in your announcement as well.

Setting the clock

Timed auctions. Close when your bidders are awake and at home: an evening or a weekend afternoon in their time zone, not yours. Stagger the closing times so that lots end one or two minutes apart rather than all at once; a bidder outbid on one lot then has a moment to move to the next. Leave the soft close on. A sale of a few days is long enough; interest does not grow with a longer run, it only spreads thinner.

Dutch auctions. Keep the clock short, an hour or less for most goods, and announce the start the way you would announce a live sale. Put the start time in the lot description and in every post about it. If you sell the same goods weekly, keep the same day and hour.

Reverse auctions. Give suppliers a day or two of notice and a clock of a few hours, and tell them in your invitation when it opens and when it reaches the ceiling, so that nobody misses it because they expected a longer run.

Time zones. A lot page shows its times in the time zone you set for the lot. Write the zone into every announcement that names a time, and open the lot page on a phone before the sale starts to see what your bidders will see.

Mistakes that cost money

• A Dutch start price that is too low. Someone accepts at once and you have sold at your opening figure. Start high; the clock will find the buyer.
• A floor set at the hoped-for price. The lot ends unsold and you have learned only that the market was below a number you did not mean. The floor is the least you will take.
• A Dutch clock that runs for days. Nobody watches a price fall slowly. An hour with an audience beats a week without one.
• Selling a contested lot as a Dutch auction. When three people want it, let them bid. The Dutch clock gives it to the first one who gives in, at a price the other two would have beaten.
• A reverse auction with a loose specification. The supplier accepts a price for one thing and delivers another. Write the specification as if it were the contract, because in practice it is.
• Treating the ceiling as a target. It is the most you will pay, and a patient supplier will wait for it. Set it at your limit and accept that you may pay it.
• Silence about payment. Say on every lot how the winner pays and by when. In a reverse auction, say how and when the supplier is paid.
• Check the rules where you sell. Consumer law, distance-selling cancellation rights and tax on the hammer price differ by country, and a reverse auction for a public body may fall under procurement rules.

Frequently asked questions

Is a Dutch auction the same as a reverse auction?

No. In a Dutch auction you sell: the price falls and the first buyer to accept it pays that price. In a reverse auction you buy: the price rises and the first supplier to accept it supplies at that price. They are confused with each other because in both the clock, not the bidders, moves the price.

Is a timed auction the same as a forward or English auction?

Yes. “English” and “ascending” describe the rising bids, “forward” distinguishes it from a reverse auction, and “timed” says it closes at a set time rather than when an auctioneer brings down the hammer. All four names describe the same format.

Can a buyer bid below the current price in a Dutch auction?

No. A Dutch lot takes no bids, only an acceptance at the price the clock shows at that moment. If you want buyers to name a price, run a timed auction, or let them make an offer on a timed lot that closed unsold.

What happens if nobody accepts before the Dutch clock reaches the floor?

The lot ends unsold at the floor. You can list it again with a lower start or a lower floor, or as a timed auction. The floor was your reserve, and an unsold Dutch lot tells you the market was below it on that day.

Does the site handle the payment in a reverse auction?

No. A reverse auction fixes the price and emails it to you and the supplier; the order, delivery and payment are settled between you under your own terms. A timed or Dutch lot, by contrast, is paid on the site by card, PayPal or bank transfer.

Do soft close and automatic bidding work on Dutch and reverse auctions?

No, and they would have nothing to do: there are no competing bids to extend or to top. Soft close, automatic and absentee bidding, Buy Now, Make an Offer and second-chance offers belong to the timed auction. A Dutch or reverse lot is decided by one acceptance at the clock’s price.