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Large Scale Collective Reverse Auction Model with Competing Sellers and Buyers

IP.com Disclosure Number: IPCOM000132025D
Original Publication Date: 2005-Nov-29
Included in the Prior Art Database: 2005-Nov-29
Document File: 4 page(s) / 30K

Publishing Venue

IBM

Abstract

This publication describes a new hybrid model. It explains how a reverse auction initiated by one buyer or a seller can result in a large scale collective reverse auction involving many buyers and many sellers. The existing auction and reverse auction models are generally either one seller to many buyers or one buyer to many sellers. At first this model may look identical to the stock exchange or a clearing house model but it is not. The model presented here results in lower prices for buyers as the number of buyers increase contrary to a traditional auction. This model creates competition on both the seller and the buyer side. The model is based on presenting a large and dynamically growing pool of buyers to multiple sellers. This pool of buyers is formed dynamically and is based on the product or service being auctioned. The key difference between this and any other existing model is that neither the winning seller nor the winning buyers are known until the auction completes. The sellers will be interested in the process as this model presents a large number of buyers and bulk orders.This model of reverse auctions opens the door for buyers to bargain collectively and puts them at an advantage against suppliers of popular consumer items. This model makes it possible for the buyers to enjoy a collective buying and bargaining power without even knowing if the other buyers exist. The traditional reverse auction model is suitable mainly for large industrial buyers. The traditional model does not fit a consumer simply because suppliers are generally not interested to compete for small orders of popular consumer items. Even the biggest suppliers and sellers will be motivated to participate in a reverse auction based on the model described in this document. While the online marketplace has provided suppliers & sellers of products and services an advantage on the traditional B2C, B2B or C2C auctions, the existing reverse auction models are not suitable for individual buyers or consumers.

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Large Scale Collective Reverse Auction Model with Competing Sellers and Buyers

A marketplace in the form of an Internet website is used to bring together buyers who are interested in buying popular products or services. An auction manager(s) or auctioneer manages the auction(s). The product/service can be chosen by individual buyers as a wish list, suggested by the auction manager or suggested by a seller. Each buyer bids his/her own maximum bid price for a certain quantity of product or service in the form of a sealed online bid. This price is different for each buyer. The potential buyers are pooled together by the auctioneer website after a certain time or after an optimum number of bids have been received. The auction manager then presents this pool of buyers and their bids as a consolidated bid to a pool of sellers. The seller never knows the individual bid prices or the number consumers. The auction house's 'buy' bid price is calculated by the auction manager and it could be the average price plus a profit or based on some other algorithm/factors. Sellers/suppliers compete among themselves resulting in a bargain price to the consumer. If no supplier is interested in bidding, the auction house may raise the buy price. Competing sellers bid the price down. The sellers benefit by getting a large pool of buyers and large order quantities. If the auction results in a successful closure, multiple buyers and a single seller are declared winners. In some cases, multiple sellers can be declared winners. The transaction always happens between the seller and auction house or the buyer and the auction house. The auction house which conducts the auction is motivated by profit and has no particular interest to favor buyers or sellers. This auction model creates competition and motivation on both the seller and buyer side. There is no restriction on what products and services can be offered as there are no pre-negotiated contracts between the auction house and sellers.

The advantage to the auction house or the market place owner is the collective bargaining power resulting in margins on products and services. New suppliers can be encouraged to participate to increase the competition among them. This model is ideally suite to popular existing auction houses with high visibility and established brand names but other potential auction houses could be TV based sales channels which already have a large following.

A typical scenario described below will help understand some aspects of this model.

1. An online auction house is formed.
2. Several suppliers/sellers of products and services are registered and approved for participating in auctions. New sellers can join bidding just as buyers do in a traditional auction.
3. Several buyers or consumers are registered and approved. New buyers can join bidding just as buyers do in a traditional auction.
4. A product or service is listed for auction by the auction house and an auction manager is assigned....