Reverse Auction

Online auction business model - Reverse auction 1 Reverse auctions are where the roles of buyer and seller are reversed. Multiple sellers compete to obtain the buyer's business and prices typically decrease over time as new offers are made. They do not follow the typical auction format in that the buyer can see all the offers and may choose which they would prefer. Reverse auctions are used predominantly in a business context for procurement.

Online auction business model - Reverse auction 1 The term reverse auction is often confused with unique bid auctions, which are more akin to traditional auctions as there is only one seller and multiple buyers. However, they follow a similar price reduction concept except the lowest unique bid always wins, and each bid is confidential.

Reverse auction 1 A 'reverse auction' is a type of auction in which the roles of buyer and seller are reversed. In an ordinary auction (also known as a forward auction), buyers compete to obtain a good or service by offering increasingly higher prices. In a reverse auction, the sellers compete to obtain business from the buyer and prices will typically decrease as the sellers undercut each other.

Reverse auction 1 A reverse auction is similar to a unique bid auction as the basic principle remains the same, however a unique bid auction follows the traditional auction format more closely as each bid is kept confidential and one clear winner is defined after the auction finishes.

Reverse auction - Context 1 The most common application of reverse auctions is for E-procurement, a strategy used by purchasing as part of strategic sourcing and other supply management activities.

Reverse auction - Context 1 A reverse auction is different in that a single buyer offers a contract out for bidding (by either using specialized software or through an online marketplace). Multiple sellers are then able to offer bids on the contract. As the auction progresses, the price decreases as sellers compete to offer lower bids than their competitors whilst still meeting all of the specifications of the original contract.

Reverse auction - Context 1 Reverse auctions are used to fill both large and small value contracts for both public sector and private commercial organizations. In addition to items traditionally thought of as commodities, reverse auctions are also used to source buyer-designed goods and services; and they have even been used to source reverse auction providers. The first time this occurred was in August 2001, when America West Airlines (now US Airways) used FreeMarkets software and awarded the contract to MaterialNet.

Reverse auction - Context 1 In 2003, researchers claimed an average of 5% of total corporate spending was sourced using reverse auctions.Beall, S., Carter, C., Carter, P., Germer, T., Hendrick, T., Jap, S., Kaufmann, L., Maciejewski, D., Monczka, R., and Peterson, K., (2003), “The Role of Reverse Auctions in Strategic Sourcing, CAPS Research Report,” CAPS Research, Tempe, AZ

Reverse auction - History 1 Pioneer of online reverse auctions, FreeMarkets, was founded in 1995 by former McKinsey consultant and General Electric executive Glen Meakem after he failed to find internal backing for the idea of a reverse auction division at General Electric

Reverse auction - History 1 The company's growth was aided greatly by the hype of the dot-com boom era. FreeMarkets customers included BP plc, United Technologies, Visteon, H.J. Heinz, Phelps Dodge, Exxon Mobil, and Royal Dutch Shell, to name a few. Dozens of competing start-up reverse auction service providers and established companies such as General Motors (an early FreeMarkets customer) and SAP AG|SAP, rushed to join the reverse auction marketspace.

Reverse auction - History 1 This led to a consolidation of the reverse auction service marketplace

Reverse auction - History 1 Fortune magazine published an article in March 2000, describing the early days of reverse auctions.

Reverse auction - History 1 In the past few years mobile reverse auction have evolved. Unlike business-to- business (B2B) reverse auctions, mobile reverse auctions are business-to- consumer (B2C) and allow consumers to bid on products for pennies. The lowest unique bid wins.

Reverse auction - History 1 Very recently business-to-consumer (B2C) auctions with a twist have started to evolve; they are more similar to the original business-to-business (B2B) auctions than mobile reverse auctions in that they offer consumers the option of placing a specification before retailers or resellers and allowing them to publicly bid for their business.

Reverse auction - History 1 In congressional testimony on the 2008 proposed legislative package to use federal funds to buy toxic assets from troubled financial firms, Federal Reserve chairman Ben Bernanke proposed that a reverse auction could be used to price the assets.

Reverse auction - History 1 516, , February 23, 2005 In 2008, OFPP issued a government wide memorandum encouraging agencies to improve and increase competitive procurement and included specific examples of competition best practices, including reverse auctions.[ ment/memo/enhancing_competition_ pdf Memorandum for Chief Acquisition Officers], White House Office of Federal Procurement Policy, July 18, 2008 In 2010, The White House Office of Management and Budget cited “continued implementation of innovative procurement methods, such as the use of web-based electronic reverse auctions” as one of the contracting reforms helping agencies meet acquisition savings goals.[ /2010/AccountableGovernmentInitiative_ pdf Memorandum for Senior Executive Service from Jeffrey Zients, Federal Chief Performance Officer], September 14,

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