Reverse Auction

Description of Reverse Auction. Explanation.

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Definition Reverse Auction. Description.

A Reverse Auction is the auction business model in which the role of the buyer and the seller are inverted, mainly with the objective to drive purchasing prices downward. A (mostly powerful) buyer issues a Request for Quotation (RFQ) for particular items or services. Multiple suppliers quote the price at which they are willing to supply the requested items or service. Unlike a regular auction, prices in a reverse auction decrease as the bidding process is going on. The quoting is often performed via the internet, resulting in a real-time bidding process. This results in a downward pressure on prices to levels that are normally not achieved using the regular static 3-quote paper-based purchasing process.

The contract is often - but not always - awarded to the supplier that provided the lowest price: quality, lead-time, capacity, and other value-adding capabilities can also play a role. Critics of the model say the model is often a zero sum game, especially for suppliers.

Also called: Buyer-Driven Auction.

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End of description Reverse Auction. An explanation.