what is a reverse auction 
a reverse auction is a type of auction in which sellers bid for the prices at which they are willing to sell their goods and services it is the opposite of a regular auction where a seller puts up an item and buyers place bids until the close of the auction at which time the item goes to the highest bidder understanding a reverse auctionin a reverse auction the buyer puts up a request for a required good or service sellers then place bids for the amount they are willing to be paid for the good or service with the winner being the seller prepared to accept the lowest amount reverse auctions gained popularity with the emergence of internet based online auction tools that enabled multiple sellers to connect with a buyer on a real time basis today reverse auctions are used by large corporations and government entities as a competitive procurement method for raw materials supplies and services like accounting and customer service image by sabrina jiang investopedia 2020example of a reverse auctionbidding for government contracts is an example of reverse auctions in this type of auction governments specify requirements for the project and bidders which are approved contractors come up with a cost structure to finish the project for instance when the u s department of defense dod has a need for a certain service or good such as say 50 fighter jets it posts a message reaching out to potential suppliers in this message the dod outlines what it needs and by when and invites interested contractors to submit price proposals within a set time frame the winner is generally the party willing to do the job specified for less 12reverse auctions are a way for companies and governments to invite competition and push down the price for a good or service that they need caveats of a reverse auctionit is important to note that the reverse auction does not work for every good or service goods and services that can be provided by only a few sellers are not necessarily ideal for reverse auctions in other words a reverse auction works only when there are many sellers that offer similar goods and services to ensure the integrity of a competitive process in addition there could be a tendency to focus on the lowest bids by sellers with less regard for the quality of the goods or services the adage cheap for a reason has the potential to apply in such instances where a buyer suffers from the suboptimal quality of the lowest priced set of goods or services purchased through a reverse auction last but not least a buyer must be thorough in communicating all of the specifications to the auction participants a failure to do so could leave the purchaser with a winning bid that does not capture all of the sought after attributes 