Fair Trading with Multi-Attribute Auctions

Client: LowestBid

Electronic market places and other internet based trading systems have become increasingly popular over the last few years. These aim to provide an efficient method for connecting buyers and sellers of products or services. By eliminating some of the paper based processes usually associated with business transactions they can, potentially, generate significant savings to all of the participants. One of the challenges in setting up such an electronic trading system is how to devise a system for matching buyers and sellers, and for negotiating prices. If this is done badly either buyers or sellers may feel that they are getting a poor deal and refuse to participate, leading to a collapse of the market place. It is in this context that multi-attribute auctions can help.

The system assists on-line trading without taking away control.

Multi-Attribute Reverse Auctions

When large corporations need to source large quantities of a commodity product, such as electricity or raw materials, they usually try to get the best deal by approaching multiple sellers. Reverse auctions are a mechanism for determining the best seller. Here sellers of the commodity product make bids of lower and lower prices for the buyer's order requirements with the lowest final bid winning the auction. The difficulty with this approach is that sellers often feel that this is not a fair system as there are criteria other than price that they are competing on. Even if they are not "cheap as chips" they may offer a better deal than their competitors through better quality product, more timely delivery capability or the like. A multi-attribute reverse auction allows sellers to compete on various criteria to win that big contract.

This concept, while attractive to both buyers and sellers, raises a number of difficulties. How should the buyer judge which is the winning bid? From the sellers point of view putting together bids involving multiple criteria is a potentially very complicated and time consuming task. If they need to undercut a competitor in order to win the auction, what is the next best bid that they should make? An additional complexity is that the buyer usually would not want their complete evaluation criteria being published to all of the sellers. These problems are solved by CSIRO's bid generation and evaluation engine developed for and with LowestBid. The system provides decision support for buyers and sellers without taking final control away from them. Sellers can still determine when to bid and by how much to undercut the best offer. The system will simply ensure that the next offer being generated is better than previous bids entered and optimise the trade-off between the different attributes of the bid. A provisional patent has been granted for this technology.

Similar techniques could be applied in many situations where decisions need to be taken quickly which take into account multiple, possibly conflicting, criteria and attributes.

For more information about multi-attribute reverse auctions, see the PDF document entitled eMARA - Electronic Multi-Attribute Reverse Auctions (PDF), or contact Andreas Ernst.

Page last updated February 03, 2010 12:46 PM by Mark Horn.