Dutch auction bleg

When and why was the first Dutch auction tried?  This question seems surprisingly difficult to research.  Please tell us what you know, thanks in advance.

Comments

Genesis 18:23-33

Very clever, but that's an English auction. Even though the "price" is falling, the terms of the transaction are becoming less attractive to God. The hallmark of a Dutch auction is that the terms get more favorable as the auction progresses; the hallmark of an English auction is that they get less favorable.

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Definitely one of the best comments I've seen around!

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Come and take your bath. Every minute you dawdle iS less time you will have watching TV.

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I would look at the Dutch flower auctions. The growers are all members of a cartel which auctions the new "crop" in a central facility. That's probably where it started.

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Interesting questions. I did some searching and according to http://books.google.com/books?id=KxMnRJ0-__UC&pg=PT201&lpg=PT201&dq=history+dutch+auction&source=bl&ots=EIlA0jFx6J&sig=TYWAIjINZltHQN1lWQokahIPyfo&hl=en&ei=kV1-TuTZE8jr0gGd_ozaDw&sa=X&oi=book_result&ct=result&resnum=10&ved=0CGkQ6AEwCQ#v=onepage&q&f=false it was first used by Dutch flower auctions. Possibly around the Tulip mania era?

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The link attached to my name has a short video documentary of the largest auction house.

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Holland?

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Did you try Quora?

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An 1898 book called "Country Life Illustrated, Vol 4" has an entertaining but probably apocryphal explanation for the practice:
"Few of the characters who take their parts in the economy of country life are more amusing than the Dutch auctioneers who are in fact neither Dutchmen nor auctioneers. For they come as often as not from Sheffield and they escape the necessity of a licence as auctioneers by reversing the process of auction." ( http://books.google.com/books?id=qRsiAQAAMAAJ&dq=%22dutch%20auction%22&pg=PA73#v=onepage&q=%22dutch%20auction%22&f=false )

The earliest citation I could find was in a 1776 proceeedings of Parliament, so the practice must surely be older than that. ( http://books.google.com/books?id=_dU9AAAAcAAJ&dq=%22dutch%20auction%22&pg=PA154#v=onepage&q=%22dutch%20auction%22&f=false ). The term "Dutch Auction" appears to have been applied by the English to distinguish it from the ordinary "English auction."

It's such a straightforward idea that I'd expect the notion to be ancient, probably prehistoric.

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You can find a 1688 reference in William Dampier's A New Voyage Around the World where he clearly describes a fish market in Malacca where the price was lowered to produce a sale:

http://books.google.com/books?id=f9sNAAAAQAAJ&q=auction#v=snippet&q=auction&f=false

Interestingly, Malacca was ruled by the Dutch at the time.

Alex

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From the History of Auctions:

"The beginnings
500 BC: Selling women for wives

In Greece , Herodotus wrote around 500 BC about auctions of women to serve as wives. It was illegal to allow a daughter to be sold outside the auction method. These auctions were also conducted in the “descending” method of starting with a high price and going lower until the first person to bid was the purchaser, as long as the minimum price set by the seller was met. The buyer could get a return of money if he and his new spouse didn't get along well, but unlike a horse, maidens could not be tried before auction. It was a “virgin or money back” business deal. Women with special beauty were subject to the most vigorous bidding and the prices paid were high. Owners of the less attractive women had to add dowries or other monetary offers in order to make the sale, explains information on learntoauction.com."

http://web.archive.org/web/20080517071614/http://auctioneersfoundation.org/news_detail.php?id=5094

I knew that sex had to be the first use. Sex propels all innovation, including the internet.

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I like the Genesis reference -- conservatively 6th century BC (which interestingly is not far from Greek reference). Presumably the practice was around earlier.

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As Bill mentioned, the "Babylonian woman" auctions mentioned in Herodotus look a lot like Dutch auctions. The story goes that some women were sold for "negative prices" if they were particularly uncomely. I've heard that there's no direct evidence of these auctions, though.

As far as I know, these auctions are not just the first Dutch auctions, but also the first auctions period.

There was also a futures market for brides: the parents could arrange the marriage of their daughter who was infancy and not yet of a marriageable age.

I suppose you could also have a descending futures auction as well.

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There is a story from Roman antiquity about, I think, Tarquin. ( c. 6th C. BC). A (Cumean) Sybille appeared to him and offered 12 scrolls containing the entire future history of Rome for an enormous sum of money. Tarquin would not pay this price, so she threw six of the scrolls into a fire and offered him the remaining six at the same price. Tarquin, cursing her for destroying invaluable documents, however, would not pay the price she demanded. Consequently, she threw three more scrolls into the fire and offered him the final three for the same price. Now reduced to tears , Tarquin finally paid her price for the remaining scrolls.

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Since I helped inspire Tyler to pose the question, I'd like to chip in with a few comments.

Craig, the Genesis 18 reference is quite relevant and amusing.

http://www.biblegateway.com/passage/?search=Genesis+18&version=NIV

But I don't think it's really a Dutch auction. It's really an English clock auction, because Abraham, the seller, keeps raising his "price." Each time Abraham asks for more of what he wants, God says "yes, I'm still in the auction," even at that increased price. Thus God's bids are ascending, even though the numbers keep going down.

The Herotodus reference certainly seems like a real Dutch auction. Thank you, Bill. I had forgotten reading about that in Cassady's book.

What I would really like to know is why the Dutch started using this mechanism. I heard a rumor that it was to avoid a Napoleonic tax on "auctions," and they started using this mechanism instead in order to avoid the tax, because an auction was technically defined as an English auction.

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Oops, I should have read the comments more carefully before posting.

Stinky, your Country Life reference could well be the source of the rumor I heard. I could easily imagine that quotation being embellished with a little story about Napoleon's taxes. The 1776 Parliament reference and Alex's 1688 reference both convince me that the Dutch likely copied rather than (re)invented this mechanism for the flower auctions. If the tax-evasion story turned out to be true, it would be extremely interesting.

Once I asked eBay's general counsel why they always used a "hard close" rule for ending an auction, rather than using a "going, going, gone" rule that would extend the auction by 5 minutes after each new bid - since research indicated that eliminating the possibility of "sniping" could raise revenues. He replied that eBay had consciously chosen not to change this rule, because they used the hard close as part of their argument that they were not running an "auction" that was subject to state regulations requiring licensing of auctioneers. To get an auctioneer's license in many states, you have to take a specified number of hours of classes in hog-calling and the like, which would have been inconvenient and unnecessary for eBay. :-) Of course, the auctioneers in each state wanted to keep eBay out, but they didn't succeed.

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I'd guess we'll never have any real idea of when the "first" was, as men have been trading since well before history. The most concrete evidence of this that comes to mind is stone tools made by neolithic Anatolians from obsidian in Catalhoyuk -- one of the world's first "cities"; the stone, which could have only been gathered about a hundred miles away, produced tools which were dispersed throughout the area. Of course, men were probably trading well before this time period anyhow, given human nature. Auctions are a natural way to sell relatively rare items desired by a number of buyers, and Dutch auctions aren't very different from normal auctions. So given a time period of four thousand years at a minimum of extensive trading before writing, there were plenty of opportunities for something we might call Dutch auctions. Thus, it's fairly reasonable to assume that it's rather likely that such events took place in prehistoric times.

Agreed, Matt Ridley's book The Rational Optimist goes into this as well -- trade is arguably what best defines us as humans, studies have found no other animal really groks the concept of trading something less of something it likes better for more of something it likes less, and trade explains a lot of our success as a species.

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1. (Agricultural) auctions (flowers, vegetables, eggs) became popular around 1900 in the Netherlands, when they enabled farmers to overcome all kind of market imperfections. However - there was a clear free rider problem. Horticulturalists did not want to bind themselves too much and to oblige themselves to sell all their produce via the auction. In World War I, however, the government coerced them to do exactly this, as the government wanted to control exports of (scarce) food. This yielded such beneficial results (for the farmers) that they all voluntarily agreed to sell all their produce on the auction and not directly to all kinds of traders anymore. Read all about this in my dissertation, "Dutch agriculture 1951-1950. Production and institutional change" (Amsterdam 1993). Auctions of farms and the like stayed 'english', however.

2. I'll try if I can find anything about the Napoleon thing. The auctions of the Dutch VOC in seventeenth century Amsterdam might however be more interesting.

3. I remember that, when I was a child and we lived in Baranquilla, Colombia (my dad being an expat working for Philips) we once visted a fish auction (Dutch type, selling fish 'by the burning candle might not be the cleverest of all ideas). A man uttered incomprehensible sounds at an incomprehensible speed (and remember - at the time I was used to the fast pace of Clombian spanish). So now and then somebody raised his hand just a little - and a market transaction was established. it was possibly there and then that I, unconsciously at the time, understood that markets are about explicit prices and explicit volumes and explicit products and explicit qualities and explicit agreements - the idea of an 'implicit market' is a contradictio interminus. Markets are explicit - or they aren't. Non-market economic behavior is all about fuzzy agreements and fuzzy products and about duties and obligatoins, not about contracts and transactions.

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I foudn this one:

"With a deafening and thunderous noise the large Amsterdam warehouse at the old shipyards of the United East-Indies Company, the Verenigde Oostindische Compagnie (VOC), collapsed on the 14th of April 1822. It simply imploded, except for one wing. An artist immortalised the scene. The event re-enacted the death of the VOC 20 years before. For almost two centuries, the landmark building had stored the riches brought by thousands of ships, waiting to be sold by Dutch auction"

http://gutenberg.net.au/VOC.html

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