Coercion and reverse auctions

The paper seeks to examine the presence of coercion in the common use of reverse auctions for industrial procurement and spend management activities, and to illustrate the many problems that arise when purchasing and supply management is viewed by powerful buying organizations as a simple dyadic relationship with sellers.

The paper takes the form of a literature review, and analysis of the meaning of coercion, and supplier survey data.

Reverse auctions, as commonly used, are shown to be fundamentally coercive, with coercion being essential for achieving the outcomes that buyers seek.

Survey responses and findings that can be drawn from them are limited due to the small sample size. Reflects the dyadic nature of buyers' corporate codes of conduct in relation to the day‐to‐day practice of purchasing and supply management.

The existence of coercion indicates that reverse auctions are inconsistent with corporate codes of ethics or codes of conduct with respect to supplier relationships (e.g. fairness, honesty, and integrity). Reverse auctions are also shown to be inconsistent with US federal procurement standards and the Institute of Supply Management's “Principles and standards of ethical supply management conduct”.

The paper brings to the forefront the existence of psychological and economic coercion in the common use of reverse auctions, and discusses how this creates difficult problems for both buyers and sellers. It also presents alternative strategies that managers in buying and selling organizations can use instead of reverse auctions.