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Reverse Auctions are interesting

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Author: Brad

Reverse auctions are interesting. A reverse auction is the absolute opposite of any other kind of auction. In most auctions, the winning bidder wants the price to be as low as possible, but in a reverse auction, the winning bidder wants the price to be as high as possible.

Reverse auctions are also called procurement auctions, e-auctions, sourcing events, e-sourcing, or eRAs. But whatever term is used, the objective is the same.

Industries often use reverse auctions when letting contracts or buying supplies or raw materials. Many times these reverse auctions are conducted as sealed-bid auctions. That is, the bidders all submit their bids at the same time or by a specified time, and the low bidder is the winner.

Procurement of materials, supplies, services of all kinds, construction, and manufacturing of parts by governments is often done via reverse auctions. The government advertises for bidders to submit bids for everything from supplying toilet paper to providing entertainment for troops to building fighter jets.

By law, those who make purchases of any kind on behalf of the government or the armed services are required to bet the best "deal" that they can get, and it was determined long ago that holding reverse auctions was the best way to ensure the government would get the lowest price. (It doesn't always work out like that, but that is the objective.)

Big business and governments have long used reverse auctions, but public reverse auctions began to gain popularity during the 1990s thanks to the Internet.

In all other types of auctions, the objective is to drive the price up; but in the reverse auction, the idea is to drive the price down. Buyers compete to buy goods and services at the lowest possible cost in all auction formats except the reverse auction. In the reverse auction, the buyer attempts to drive the price down as low as possible.









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