Reverse Auctions are a specialized auction format that allows individuals/organizations to procure goods and services at the lowest possible price. Featuring decreasing incremental bidding, the format lets potential suppliers submit a bid and the supplier with the lowest price will win. In other words, prospective buyers can list any items that they wish to buy, and then sellers bid to provide the best price. The consumer decides the exact specifications of each item, instead of the specifications being dictated by the seller.
Reverse English Auctions
English auctions are probably the most common type. Sellers bid the lowest
price they are willing to sell an item for and bidding activity stops when
the auction duration is complete. The item is bought from the lowest bidder at their bid price.
English auctions also allow the buyer to specify a reserve price above
which the item will not be bought.
Reverse Vickrey Auctions
The Vickrey auction allows for selling single items as does the English
Auction. The difference is that the lowest bidder sells the item at the price offered by the second lowest bidder. This is a good format because sellers have the incentive to bid what they think the item is worth and not worry about what other sellers will bid.
Reverse Dutch Auctions
Dutch auctions are special type of auction designed to handle the case
where a buyer has a number of identical items they wish to buy. The buyer
should specify the maximum price (starting bid) and the exact number
of items that are they wish to buy at that price. The sellers bid at or
below that maximum price for the number of items that they are
interested in selling. At the end of the auction, the lowest bidders
earn the right to sell those items at the minimum successful bid.
Here is an example, say a buyer wishes to purchase twenty-five widgets at maximum starting bid of $75.00 and forty-five sellers place bids for one widget each, at $75.00.
In this case, only the first twenty-five sellers will be the bidders
who will sell their product successfully. Since the bid amounts are the
same, the earlier bids will sell merchandise.
Now, let's say that one of the sellers bids $50 for one widget.
Since his bid is lower than all the others, he will certainly be
one of the bidders to sell his/her merchandise.
If sellers continue to bid lower than the starting price enough
times, then the final bidding price will decrease as well. In
another instance, if less than twenty-five people bid in our
example "widget" auction, only that number of widgets will be sold
at the opening price of $75.00. For the selling price to decrease
past the opening price specified by the buyer there must be a
higher or equal level of sellers than the supply indicated. In our
example, the buying price would only decrease if twenty-five or
more widgets were bid on, no matter what the amount of each bid.
In a case where a seller bids to sell multiple quantities, the seller
who bid the lowest will not always sell the merchandise that he/she
bid on. If the seller who made the lowest bid made available a quantity
of four widgets, he/she may not even be entitled to sell one widget.
For instance, if 12 other lower bidder/sellers each sold two widgets,
there would only 1 widget left. In this case, the original bidder/seller
would only be entitled to sell one widget, even though he originally bid
for four. The way around this problem is to ensure that you are not
the highest successful bidder. Note: A bid's value in the auction is
determined by the total number of items bid on, multiplied by the
Reverse Yankee Auctions
A Yankee Auction is a variation of the Dutch Auction where successful
bidders sell what they bid as opposed to selling at the price determined
by the lowest qualified bidder (as in a Dutch Auction).