Stanford Study Supports Reverse Auction Usage

In the past few years, there's been a few curmudgeons in the academic community who have attempted to refute the value of reverse auctions. But for every academic detractor, it seems that they're a dozen or so proponents at universities across the country. I came across a press release today from Stanford announcing the findings from a research study that shows the "Smart Usage of Auctions Can Save Industrial Buyers Millions".

One of the intriguing findings of the study is that basic reverse auctions often yield the best results when used in a multi-round negotiation environment. According to the authors of the study, Prof. Tunay Tunca and Oiong Wu (a Phd candidate), "when things are a little more uncertain and complicated -- when there are few suppliers, when those suppliers can easily fill the orders without any extra investments, and when buyers are not so sure of what suppliers’ actual costs are -- then a simple reverse auction makes the purchaser more vulnerable to losing out on pricing. In this case ... buyers are better off instituting a two-stage process, in which they hold an initial auction to identify the lowest bidders, but then add an additional contracting stage to negotiate further with those bidders."

-Jason Busch

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