While binding reverse auctions have attracted a good deal of interest in the academic literature, in practice dynamic non-binding auctions, sometimes referred to as bidding contests, are the norm in procurement. In those bidding contests, suppliers submit price quotes and can respond to quotes of their competitors during a live auction event. However, the lowest quote does not necessarily determine the winner. The buyer decides after the contest, taking further supplier information into account, on who will be awarded the contract. We show, both theoretically and empirically, that this bidding format enables suppliers to collude, thus leading to non-competitive prices.
Fugger, Nicolas, Elena Katok and Achim Wambach (2016), Collusion in dynamic buyer-determined reverse auctions, Management Science 62, 518 - 533. Download