What is a Vickrey reverse auction?

December 7th, 2010

I was asked this question at a presentation I was making to a group of buyers last week. The answer is pretty simple. However…

According to Wiktionary the Vickrey reverse auction is named after a Canadian professor of economics named William Vickrey (1914-1996) who was also a Nobel laureate.  Vickrey’s paper, Counterspeculation, auctions and competitive sealed tenders, was the first of its kind using the tools of game theory to explain the dynamics of auctions. Any one that truly understand the magic of a reverse auction understands that the same type of psychology that drives gaming in a Casino drives the dynamics of a reverse auction.

There are a number of types of reverse auctions which is why a strategy is important when you look at each category that you decide to take to market. Specifically to the opening question, a Vickrey auction allows for selling single items where the lowest bidder sells the item at the price offered by the second lowest bidder.

Now try and figure out how you would implement this strategy. Would you use ranking? If so, what impact might it have?

We look forward to and appreciate your comments.

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One Response to “What is a Vickrey reverse auction?”

  1. MarketDojo says:

    I’m quite surprised at the number of different auctions on offer. During my 5 years in my former role as a purchasing consultant managing auctions for companies like BP and Norgren, we rarely had any need to run an auction that wasn’t your straightforward ranked approach.

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