Reverse auction format choice decision based on supplier attributes

Abstract

Procurement cost is key budget in many industries, thus Procuring from low-cost suppliers is vital to keep competitive. Reverse auction procurement has been proven to adequately help buyers triggered fierce competition among sellers by effectively disclosure cost range of the seller. This paper argues that different reverse auction format leads to different results in an asymmetric information setting. In fact, buyers can acquire part of the private information of suppliers according to their attributes, such as location, technology and scale. These attributes determine suppliers' risk preferences and costs distribution, thus determining their bidding strategy. This paper discusses how bidding goes in different auction with attributes consideration and gives the optimal auction decision. Finally, a numerical simulation proves that the optimal reverse auction format is superior to other reverse auction format.