Reverse auction - Definition and Overview

A procurement auction (sometimes called a reverse auction) is a type of auction in which the role of the buyer and seller are reversed. In a more typical auction, the seller puts up an item for sale, multiple buyers bid for the item and depending on the nature of the auction (English or Dutch), and one or more of the highest bidders buy the goods at a price determined by the bidding.

In a procurement auction a buyer puts up a request to purchase a particular item. Multiple sellers bid to sell the requested item and the winner of the auction is the seller who offers the lowest price.

Procurement auctions are commonly used to fill government contracts.

From the standpoint of game theory, these auctions are formally equivalent to a more traditional auction.