Reverse auction is a term that is generally associated with Internet auction and e-purchasing. This event is also known by many other names, including procurement auction, sourcing event, e-sourcing, and e-auction. The first such auction took place in the 1990s, when the Internet was introduced as an auction tool.
In a regular auction, purchasers are allowed to place a bid on an item, which is the amount they are willing to pay in order to buy the item. The person who places the highest bid usually ends up with the item.
With a reverse auction, however, the opposite is true. More specifically, the buyer advertises a need for an item or service. Sellers then place bids for the amount they expect to be paid in order to perform such a service or provide such an item. Generally, the seller who places the lowest bid will win the job or sell the item.
For a reverse auction on the Internet to take place, a great deal of planning is required. It begins with a meeting that takes place between the buyer and the seller, who is also known as the market maker. During this meeting, the buyer and the seller discuss the requested service or good. Special considerations, such as necessary materials to complete the job, the time frame to complete the job, and even the budget for the job, are discussed at this meeting. If the buyer is interested in purchasing an item, considerations such as the age of the item and quality of the item may be discussed beforehand.
The bidding of an online reverse auction is generally captured as it takes place. This “real time” bidding feature makes the bidding more competitive, as sellers attempt to outbid each other in order to win a job or to sell an item. At the end of the day, the objective of a this type of auction is to lower purchase prices for the buyer.