Why buyers should run electronic reverse auctions

The technical jargon is asymmetry of information.

In English: You, the buyer, don’t know what price potential suppliers would be prepared to supply to you. Each supplier knows what price he could go to but, cartels aside, each supplier does not know what price other suppliers would be prepared to go to.

In this kind of climate everyone has to assume a market price. Usually they assume this market price based on what was paid last year. If you negotiate a 5% saving based on last year’s prices then you might think you got a good deal. But if all the suppliers would have been willing to give you 15% or even more then you got a bad deal.

You will never know the true market price until you run a reverse auction which contains (and only contains) well-qualified, serious suppliers.


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