We will look at the possibility of applying a reversed auction on the housing cooperatives market. First we will analyze reversed auction in health care through a literature review.
Auctions, negotiations and tenders
It is important to define a non-web auction "a market institution with an explicit set of rules Determining resource allocation and prices on the basis of bids from the market participants' (McAfee and McMillan 1987). The bidders in this auction determine the price they want to pay for a particular product or service and the seller determines the rules of the auction. A reversed auction works exactly opposite the seller determines the "base price" and the buyers determine the rules of the auction. The difference, for example with websites such www.marktplaats.nl is that the winner of the auction on Marktplaats does not have the obligation to buy the product but after the bid the negotiations begins. The seller gets an email and then can be further negotiated without obligation. The European Union defines an electronic auction for tenders as ‘a repetitive process involving an electronic device for the presentation of new prices, revised downwards, and/or new values concerning certain elements of tenders, which occurs after an initial full evaluation of the tenders, enabling them to be ranked using automatic evaluation methods’(2004).
Furthermore, it is important that there are proper mechanisms in place during the auctions to determine a number of things from a bid. Whether a bids will be (i) increasing or decreasing, (ii) simultaneous or sequential, and (iii) open or closed. In addition, there are some other things for example: how the auction stops, how bids are Compared, how the price is Determined and how the goods are Allocated to the winning bidders. Furthermore, there are rules for the step size of the biddings and there can be a minimum starting bid (Sashi and O'Leary 2002). There are several auction methods but a special method is the 'reverse auction’ in which the price doesn’t increase but decrease. It starts with a high price and buyers offer lower and lower until a certain market price is reached. The vendors then accept the lowest bid from a buyer (Smeltzer and Carr 2003).
Electronic auctions and markets
For the housing cooperatives an electronic auction will be used, Because this is the best way to reach the different parties. "An electronic auction brings buyers and sellers together through some type of electronic media Benthic, usually the Internet" (Heck and Ribbers 1998). Hierarchies and markets are the two structures that provide the control of flowing of goods and services within and between companies. This is described in the Transaction Cost Theory (Oliver 1985). TIH predicts a decrease of the traditional intermediaries by an increase in the IT-enabled data exchange (Benjamin and Wigand 1995). Sarkar, Butler et al. (1998) thus came with a theory of electronic value chains and the requirements that must be statisfied. "Cydermediaries" are mentioned as the best solution for new needs in the market.
The chosen method for this research is a case study of three well-known existing solution for auctions. At first the Care Auction case is analyzed. Secondly, the Dutch version of Ebay, Marktplaats.nl is analyzed and finally the Dutch website werkspot.nl is analyzed. The goal of this case study is to take the best aspects of each case in order to combine it in a tailored solution for multiple Housing Cooperatives as a standardized and accessible tool.
"Care Auction is a private initiative and a small privately owned (dotcom) company aiming to enable Internet-based auctions for care and care related products and services " (Smits and Janssen 2008).
Care Auction has placed itself at the business side of the care contracting market. It is the intermediary between insurance companies and care providers. It uses IT to change the market, Care auction changes the purchasing processes of insurance companies. Figure 1 shows the overview of the new market.
Figure 1: Care Auction Model
Some results of the Care Auctions case:
After the implementation of the Care Auction system : a reverse auction system for relatively simple care services. There was a little price reduction found of 3%, but important to mention here is that 80 % was chosen based on preferences. When in the process price is the only important factor there is a reduction of 11 % . Besides it can save cost it is important to understand a condition for the success of Cyber Mediation . “Cyber Mediation is successful if it is attractive to the main buyers in a market and if thesis buyers have the power to force suppliers to use the cybermediary” (Smits and Janssen 2008).
In the theory just described the concept reversed auction is explained. The building of the application for housing cooperatives in the current economic situation should also cut down on maintenance. Because the houses must still be maintained reversed auction may lead to lower costs while maintaining stays the same. The quality may even improve through the use of a rating system. On the long term, only the best professionals remain in the list. This way of offering the jobs will always be cheaper for the housing cooperatives because the give in advance a indication of what price they are willing to pay. The starting bid of the auction will be this amount so it can only be less than this money.
Benjamin, R. and R. Wigand (1995). "Electronic markets and virtual value chains on the information superhighway." Sloan Management Review (Winter, 1995).
Heck, E. v. and P. M. A. Ribbers (1998). "Introducing electronic auction systems in the Dutch flower industry-a comparison of two initiatives." Wirtschaftsinformatik 40(3): 223-231.
McAfee, R. P. and J. McMillan (1987). "Auctions and bidding." Journal of economic literature 25(2): 699-738.
Sarkar, M., et al. (1998). "Cybermediaries in electronic marketspace: toward theory building." Journal of Business Research 41(3): 215-221.
Sashi, C. and B. O'Leary (2002). "The role of Internet auctions in the expansion of B2B markets." Industrial Marketing Management 31(2): 103-110.
Smeltzer, L. R. and A. S. Carr (2003). "Electronic reverse auctions: promises, risks and conditions for success." Industrial Marketing Management 32(6): 481-488.
Smits, M. and R. Janssen (2008). "Impact of electronic auctions on health care markets." Electronic Markets 18(1): 19-29.
