A reverse auction is a business model that inverts the usual auction structure: instead of one seller and many bidding buyers, a single buyer solicits competing bids from multiple sellers, who progressively lower their prices in order to win the contract. It is widely used in government procurement and in corporate e-procurement across industries including automotive components, chemicals, manufacturing and telecommunications, with the buyer able to award the contract on price alone or on a combination of price, quality and delivery terms. The format gained prominence after the 1995 founding of FreeMarkets, an early online e-procurement company, and real-time reverse-auction bidding has been reported to cut buyer costs by an average of around 18 to 20 percent compared with traditional procurement.
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