A reverse auction is a business model that inverts the usual auction structure: instead of one seller and many bidding buyers, a single buyer solicits competing bids from multiple sellers, who progressively lower their prices in order to win the contract. It is widely used in government procurement and in corporate e-procurement across industries including automotive components, chemicals, manufacturing and telecommunications, with the buyer able to award the contract on price alone or on a combination of price, quality and delivery terms. The format gained prominence after the 1995 founding of FreeMarkets, an early online e-procurement company, and real-time reverse-auction bidding has been reported to cut buyer costs by an average of around 18 to 20 percent compared with traditional procurement.
Facts
Core MechanismA reverse auction inverts the ordinary auction's roles: one buyer solicits bids from many potential sellers, and rather than bidders competing to pay more, the competing sellers underbid one another so price typically falls over the course of the auction. This suits business and government procurement, where a buyer wants competing suppliers to bid down the cost of a defined good or service. 1 Cross-Tradition Connections
Associated With
Reverse auctions, where sellers compete by bidding prices down for a buyer's business, are widely used in e-commerce and procurement platforms.
Sources
1. Wikipedia, Reverse Auction
WikipediaWikipedia: Reverse auction, lead paragraphQuote, Wikipedia: Reverse auction, lead paragraph
In contrast, in a reverse auction, the sellers compete to obtain business from the buyer and prices will typically decrease as the sellers underbid each other.
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