Evidence of Revenue Equivalence in B2B Open, Reverse e-Auctions and First Price Sealed Bids

The rise of the Internet and its role in global business has lead to the development of an emerging electronic marketplace, including business to business markets. This research looks at B2B auctions in e-marketplaces versus more traditional B2B auction formats. In particular, we compare open, online reverse auctions to first price sealed bids, with a particular interest in pricing strategies. We examine two issues driven by the literature and interviews with purchasing and selling executives. First, we examine whether the online reverse auctioning process is fundamentally different, from a pricing perspective, than first price sealed bids, given sufficient bidding/auction experience. Second, we look at the effects of expected future business on bidding strategies. We use a series of six laboratory experiments with five teams participating in each series of auctions. We manipulate both auction format and the expectations of future business. We find no evidence of a price differential for open, reverse e-auctions versus first price, sealed bids in B2B auction markets. Further, while expectations of future business lowered prices somewhat, the amount was not statistically significant, lending support to the winners curse as a more plausible explanation for firm‟s very low bid prices, often below cost.