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cations capability. Where once negotiations were conducted by human, Internet-
based negotiations can be performed at a fraction of the cost (Quan, 2000).
Auction Models
Auction models
take different forms in a continuum from one buyer and one seller
to many buyers and sellers. The classification of B2B auctions is based on whether
the price is ascending or descending, who initiates the bidding process, and the
interactivity format (which is presented in Figure 1).
The simplest auction model is negotiation. In traditional or forward auctions
the only factor determining the winning bid is usually the highest price. Reverse
auctions
are used primarily for procurement. Exchanges
are generally very fast
and efficient and work best for commodities with well-defined attributes (Messmer,
2000).
Direction of Bidding. English auctions, typically used in forward auc-
tions, start the bidding at the lowest acceptable price and solicit higher bids until
the auction closes. The highest bid wins. In Dutch auctions, the bidding starts at
a high price and decreases by successive bids until the auction closes. It can be
used in reverse or procurement auctions. A Vickrey auction
is like an
English
auction except that the second highest sealed bid wins. In Japanese auctions
the
bidding begins at a low price and increases in fixed amounts. As the amount
increases, bidders drop out until there is only one bidder remaining.
Vervest, 1998)