In a Dutch auction, participants submit bids specifying price and volume. The organizer ranks them in descending price order and fulfills bids until the offering volume is exhausted. The price of the last satisfied bid becomes the clearing price, applied to all winners—including those who bid higher.
The opposite mechanism is an American auction, where each winner pays the exact price they specified in their bid. This difference affects participant behavior: with a uniform clearing price, there is no risk of overpaying relative to others, so bids are placed closer to true valuation.
This method is used for government bond placements and corporate share buybacks. For investors, understanding which scheme applies to a specific offering is practically important, as it determines how to set the price in a bid.