How’s the Auction Conducted? Reverse auctions are a transaction format that allows buying organizations to procure goods and services at the lowest possible price. While forward auctions feature increasing incremental bidding, reverse auctions feature decreasing incremental bidding. The format lets participants submit bids where the bidder with the most advantageous bid to the firm will win. In a reverse auction, prospective buyers can list any items 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.

There are a variety of auction formats and many characteristics that define auctions.

These formats and factors are valid for traditional or online auctions. The number of bidders and pattern of bidding is determined by the rules of the auction and its surrounding environment. Relevant environmental factors include the type of the good being sold, risk preferences of bidders, the time frame of the auction, and the available information concerning the bidding process.

One auction characteristic that may influence auction success is auction time or auto-extension of the bidding period. Most auctions are initiated with advanced notice of a specific closing time. The fixed end time poses an incentive problem—the early bid serves no benefit to the bidder but reveals information to her rivals. The typical model of the English auction would project that bidders would quickly bid their valuations and the auction would end with the highest valuation bidder receiving the price of the valuation of the second-to-last bidder. Yet many auctions with fixed-end times are experiencing "sniping" or submission of bids in the final minute of an auction. Late bidding deprives rivals of the ability of seeing one’s bid and undercutting it. Late bidding facilitates collusions or independent pricing well above that predicted by auction theory. Auction "overtimes" can restore the desirable bidding properties of reverse auctions. An overtime, or extension, to the auction is invoked if any bidding occurs in a designated final phase of the auction (e.g., bids in the last two minutes). The overtime may iterate if late bidding continues in the previous overtime. The additional time allows bidders the opportunity to react to "snipers" and minimizes the potential for pricing rings. A disadvantage of overtime is that it obligates serious bidders to return to the auction at closing time and remain through subsequent extension periods. The effect on bidder participation has yet to be examined.

What’s new in "how"? While B2B auction mechanisms are basically the same, the ability to collect data on the process is significantly enhanced by the technology. Additionally, the potential anonymity of the bidders allows more control of the auction by the buying firm. Information may be revealed or withheld as the firm sees fit.