Information Technology, Competition and Market Transformations: Re-engineering the Dutch Flower Auctions

Abstract

The Dutch flower auctions have played a critical role in the world cut-flower industry by providing efficient centers for price determination and transactions of flowers between buyers and sellers. These auctions owned by Dutch cut-flower grower cooperatives have traditionally used the “Dutch auction” as the mechanism for price determination. This paper considers how changing patters of international competition, buyer preferences and information technology are likely to effect the organization of the Dutch flower auction. We provide a framework for analyzing the merits of different transaction models and use this framework to evaluate the strengths and weaknesses of existing and proposed electronic auction models for trading flowers. We propose information technology will enable new forms of trading that will partly replace and supplement the traditional Dutch auction as a method of organizing price determination and transactions. We identify how electronic trading will differ from prior mechanisms, and consider key challenges to the implementation of new auction models. Specifically we illustrate how the current auctions have been structured to serve the interests of growers, while electronic markets will primarily benefit buyers. Thus we highlight the importance of altering incentive and ownership structures in the Dutch flower industry to effectively transition to new electronic markets. This case illustrates the various complex issues that arise in the design and implementation of electronic markets, in settings characterized by changing technologies, pre-existing organizational processes and power structures.