For those unfamiliar with the concept, reverse auctions are auctions where the bidder is the seller and not the buyer. The bid reflects how much the buyer is being asked to pay. Web-based reverse auctions have become extremely popular for purchasing large amount of goods or services at the corporate level. E-procurement is most often used to describe those business to business revere auctions. Before the internet age, they were also called Request For Proposal (RFP) or Request For Quote (RFQ).
Against popular belief, the lowest bid is not always the winner. It would be if all sellers where offering the same exact items and the buyer could consider all offer absolutely similar. In the real world, most bids will be slightly different and will always have something specific attached to them. The simple fact that the seller is different and carry its own reputation, will suffice to make a higher bid wins against a similar offer made by a less reputable seller.
Buyers benefits involve cutting costs and time expenditures. With reverse auctions, buyers create a project description and post it online. Invitations are then sent out to potential vendors who place a bid and describe their qualifications and the details of what their bid includes. Because all of the bids are lined up beside each other in a chart formation, comparing them is simpler for the buyer. Additionally, buyers can eliminate certain bids based on criteria such as price or deadlines, which makes the final selecting even easier. Most reverse auction software also allows buyers to communicate with bidders so that they can refine their bids or offer clarifications. All of these features combined allow the buyer to pick a quality vendor who can fulfill the needs at a good price and in less time.
On the other hand, you can understand that building an auction can be time consumming, as the result of an auction will only be as good as the quality of the initial specifications. It is then hard to justify taking the time to make a reverse auction for small amounts unless they are highly comparable. So far reverse auction are only used by professional but there is a lot of potential saving for consummer when they plan to buy expensive goods or services such buying an expensive piece of electronics or repainting their house.