Strategic Implications of Reverse Auctions

Abstract

ABSTRACT A dramatic global power shift from seller to buyer is taking place in the reverse auction environment, with the value of materials purchased online expected to increase to more than $3 trillion in 2003. Techniques, opportunities, and problems associated with reverse auctions are described in the following paper. Special emphasis is given to General Electric Appliances. Companies such as General Electric Appliances have achieved large short-term cost savings and automation of traditionally labor-intensive processes. Reverse procurement auctions have had the effect of introducing information asymmetry in favor of the buyer, producing billions in cost savings. At least some short-run cost reductions may have come from vendors surrendering brand premiums. Further significant cost savings may not be possible; among other issues, long-term benefits to buyers may be mitigated if few vendors survive the migration to the reverse auction procurement environment, thus decreasing vendor competition.