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A Lotting Method for Electronic Reverse Auctions

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  • Kaymak, U.

Abstract

An increasing number of commercial companies are using online reverse auctions for their sourcing activities. In reverse auctions, multiple suppliers bid for a contract from a buyer for selling goods and/or services. Usually, the buyer has to procure multiple items, which are typically divided into lots for auctioning purposes. By steering the composition of the lots, a buyer can increase the attractiveness of its lots for thesuppliers, which can then make more competitive offers, leading to larger savings for the procuring party. In this paper, a clustering-based heuristic lotting method is proposed for reverse auctions. Agglomerative clustering is used for determining the items that will be put in the same lot. A suitable metric is defined, which allows the procurer to incorporate various approaches to lotting. The proposed lotting method has been tested for the procurement activities of a consumer packaged goods company. The results indicate that the proposed strategy leads to 2-3% savings, while the procurement experts confirm that the lots determined by the proposed method are acceptable given the procurement goals.

Suggested Citation

  • Kaymak, U., 2003. "A Lotting Method for Electronic Reverse Auctions," ERIM Report Series Research in Management ERS-2003-042-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
  • Handle: RePEc:ems:eureri:337
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    File URL: https://repub.eur.nl/pub/337/ERS-2003-042-LIS.pdf
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    References listed on IDEAS

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    1. Paul Klemperer, 1999. "Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-286, July.
    2. Klemperer, Paul, 1999. " Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-86, July.
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    More about this item

    Keywords

    e-commerce; e-procurement; hierarchical clustering; lotting; reverse auctions;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • M - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics
    • M11 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Production Management
    • R4 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics

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