What is Reverse Auction?
A reverse auction is a sort of auction where the buyer requests a good or service, and the sellers compete to offer the lowest price. The buyer chooses the seller who meets their requirements and budget. It is the opposite of a regular auction, where the seller offers an item, and the buyers bid higher prices. Businesses and governments often use reverse auctions to save money and time on procurement.
Types of Reverse Auction
Open-bid: This type of reverse auction is also called an English auction or open outcry. All bidders can see the current highest bid in this type of bid. The bidding starts from a high price set by the buyer and decreases gradually.
Ranked: This is a common type of auction for various sectors and projects, but not for all. It suits businesses that want to attract multiple bidders with similar price expectations. The suppliers only get their rank compared to other bids in this type of auction.
Japanese: This type of auction starts when the buyers give the suppliers an initial price. The suppliers have to accept the initial price to join the auction, which means they agree with all the requirements.
Dutch: The Dutch reverse auction is mainly used for public stock offerings. It has a lot of flexibility but can also lower the prices and make the supply chain more complex.
Benefits of Reverse Auction
The following are some benefits of reverse auctions:
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Finding out the real price of a product or service without extra charges.
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Saving time and costs in collecting and comparing bids from suppliers.
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Increasing transparency and reducing corruption in the bidding process.
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Streamlining the procurement process and reducing the need for negotiations.
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Getting the most competitively priced solution by pitching suppliers against each other.