A reverse auction is an auction where the roles of buyer and seller are reversed. The primary objective is to drive purchase prices downward – as opposed to the rising prices in a regular forward auction.

In a reverse auction, sellers are competing to win business (as opposed to a regular auction where buyers compete for the right to purchase an item). Reverse auctions (which are also called e-auctions) are generally used in business-to-business procurement, and are usually conducted by way of e-sourcing software with an e-Auction component. Reverse auctions gained popularity in the late nineties and early noughts because many initial forays not only simplified and sped up the sourcing cycle, but generated significant returns for the early adopters.

Of course, for some early adopters the incremental returns on repeat applications on the same categories diminished rapidly when all the fat was trimmed from the margins or when the market conditions shifted back to support the supply side, but many companies still get a decent return on initial application for a new category, and reverse auctions still enjoy steady usage for this reason alone.

Read more more at www.sourcinginnovation.com/glossary/ReverseAuction.php

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