Reverse procurement and auctions for consumers

Abstract

Executive SummaryWeb-based bid invitation platforms and reverse auctions are increasingly used by consumers for the procurement of goods and services. An empirical examination shows that with B-2-C these procurement methods generate considerable benefits for the consumer:⊎ Reverse auctions and bid invitation platforms generate high consumer surplus in the procurement of general and crafts services.⊎ The level of this consumer surplus is affected by the number of bidders. The duration of the auction and the starting price are less important.⊎ In the painting business prices are considerably lower than with traditional procurement channels.⊎ On bid invitation platforms, in most cases (> 55%) the bids with the lowest price are chosen.AbstractWeb-based reverse auctions and bid invitation platforms have been used successfully for the procurement of goods and services in B-2-B and B-2-G contexts for some time. More recently, such procurement tools have become available to consumers and are increasingly gaining in popularity. An empirical examination of more than 1400 bid invitations and over 1100 reverse auctions shows that these two types of platforms generate noteworthy consumer surpluses, with the number of bidders being by far the most relevant factor in the determination of surplus levels. Contrary to traditional auction environments like eBay, auction duration and starting prices turn out to be of little relevance for consumer surpluses, as correlation and regression analyses show. The analysis of procurement data further reveals that consumer-driven platforms are particularly suitable for purchases of crafts and services where they provide an efficient mechanism to bring together buyers and sellers and match supply and demand. An exemplary review of results from painting auctions indicates that the price level achieved by consumers in reverse e-procurement is below reference prices which can be obtained in traditional procurement channels. Being an attractive alternative, reverse e-procurement platforms could bring about a paradigm shift towards buyer-centred e-purchasing.