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Computer Science Optimization of Reverse Auctions

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Computer Science Optimization of Reverse Auctions Bachelor Thesis Project Computer Science Optimization Of Reverse Auctions Author: Athmar Mubark Supervisor: Anders Haggren Semester: VT/HT 2017 Subject: Computer Science Abstract Many people still confuse and misunderstand the differences between auction types. In fact, we have only two major types of auctions which are forward auction and reverse auction [22]. In a forward auction a single seller offers an item to sale with many competitive buyers driving the price upward. In a Reverse Auction, a single buyer wants to purchase a service or an item from many sellers, they drive the price downward. There are many differences between these types of auctions. Including the progress of the auctions, winner selection criterion and other factors. The Reverse Auction nowadays is one of the most preferred types of online auctions. It gains popularity rapidly because of representing the buyers’ side and helps him to drive prices down in contrary with forward auction or traditional auction. The aim of this study is to identify the most common types of the reverse auctions and compare them to one another to determine when they should be used by a buyer and propose the most efficient implementation model for some types. The results of this study are: achieve a written report and a small demonstrator model on how to implement English auction and second-sealed bid auction. Keywords: reverse auction, electronic auction, e-auction, e-procurement, online auction, buyer, seller, purchaser, bidding, Reverse English Auction, Reverse Yankee Auction, Reverse Dutch Auction, Reverse Japanese Auction, Reverse Sealed bid Auction, Reverse Vickrey Auction. 2 Preface To my Father & my Mother Who taught me to never give up. Thanks to all my family and friends for their love and endless support. Also, I would like to express my gratitude to my supervisor Anders Haggren Who Has guided me in the right direction and has helped me in my journey to become a Computer engineer. 3 Contents 1.Introduction 1.1 Background ______________________________________________ 5 1.2 Problem formulation _______________________________________ 7 1.3 Motivation _______________________________________________ 7 1.4 Objective ________________________________________________ 7 1.5 Scope/Limitation __________________________________________ 7 2.Reverse Auction 2.1 Introduction ______________________________________________ 8 2.2 Definition of Reverse Auction _______________________________ 8 2.2.1 Reverse Auction process __________________________________ 9 2.3 Types of Reverse Auction Model ____________________________ 10 2.4 Reverse Dutch Auction ____________________________________ 11 2.5 Reverse Japanese Auction __________________________________ 13 2.6 Reverse Yankee Auction ___________________________________ 14 2.7 Reverse English Auction ___________________________________ 15 2.8 Reverse Vickrey Auction __________________________________ 16 2.9 The First Price Auction ____________________________________ 17 2.10 The Second Auction _____________________________________ 18 2.11 Classification Of Reverse Auction __________________________ 19 3.Method 3.1 Scientific Approach _______________________________________ 20 3.2 Method Description ______________________________________ 20 4.Implementation 4.1 Online Reverse Auction ___________________________________ 21 4.2 Open Auction Parameters __________________________________ 21 4.3 Form of bidding _________________________________________ 21 4.4 Database _______________________________________________ 21 4.5 Use Case Description _____________________________________ 22 4.6 Component model-control-view _____________________________ 23 4.6.1 View package __________________________________________ 23 4.6.2 Control package ________________________________________ 23 4.6.3 Model Package _________________________________________ 23 5.Results ____________________________________________________ 30 6.Analysis ___________________________________________________ 32 7.Discussion _________________________________________________ 34 References ___________________________________________________ 36 4 1. Introduction Introduction chapter consist of two parts. The first part is a background section which presented the chosen topic and followed by the problem formulation. 1.1 Background Forward/traditional auction has been known for a long time for being held directly in an open place with many competitive bidders to buy an item(s) or service(s). Nowadays the most common types of auctions are online auctions. The online/electronic auction definition is “a service in which auction users or participants sell or bid for products or services via the Internet. Virtual auctions facilitate online activities between buyers and sellers in different locations or geographical areas. Various auction sites provide users with platforms powered by different types of auction software” [21]. The auction theory is a part from a game theory because it is considered as a part of a mathematical game theory. The bidders represent players and auction types represent game strategies [20]. However, how is the auction related to the game theory? The auction is a part from a model of incomplete information in game theory. The players do not have full knowledge of the game decision and when it is being played for instance we have a multiple of competitive companies. A firm knows their cost but they do not know the cost of other companies. Buyers prefer the electronic auction because it takes a shorter period of time compared to the traditional auction. As well as cost reduction and provide a broader suppliers base. According to the new study that was conducted by the Maryland’s university shows that buyers on eBay save billions of dollars each year on online auction bidding [23]. The e- auction has two categorizes - forward and reverse auctions. The forward auction is an auction which takes place on the internet marketplace with one seller to sell his/her service or commodities to many competitive buyers [2] and the price is driven upward. The Reverse auction is working in contrary to forward auction; it has pre-qualified competitive sellers to sell services or goods to one buyer. During auction time the suppliers lower their prices to compete with each other in order to win the contract business. The major differences between the forward auction and the reverse auction are summarized below. 5 Forward Auction Reverse Auction Single seller with multiple buyers. Single buyer with multiple sellers. The price is driven upward. The price is driven downward. The winner pays typically highest Buyer pays in typically lowest price. price. Bid is binding for the buyers. Bid is not binding for the buyers. Table 1: The differences between Forward auction and Reverse Auction. Picture 1 The best benefit behind using the reverse auction is cost reduction. In 2008 Anna Linne was an American retailer who began to use the reverse auction to save 50,000 dollars a year on purchasing some blankets instead the company got to save 250,000 dollars instead [24]. Another benefit is the reverse auction, it provides a broader suppliers base which can be held overseas. At some point the traditional auction firms were limited to a specific geographic area but now with the help of the internet it allows many companies to compete online. Furthermore, the reverse auction is much faster than the traditional auction, it has helped improve the procurement process. Before preparing for an auction took time between six to eight weeks but now the 6 whole process is completed between three to eight hours [5]. Increasing the business market efficiently by bringing the buyer and supplier together to a virtual environment. 1.2 Problem Reverse auction became a new phoneme in 1995, many companies aimed to improve and expand their business. Saving time and better revenue are renowned attributes which are represented by a reverse auction. One of the significant decisions companies will need which format reverse auctions will work best for their business. Buyers need to have full knowledge about each type and understand the differences between them to avoid the failure of selecting a wrong format. It appears there is a lack of information about reverse auction types. Buyers need more information about each model with pros and cons to decide which type meet their business requirements. According to a survey made by (E&I Consulting Group: 2013 Reverse Auction). They show 55% of all who participated in a reverse auction were not satisfied from the final outcome. Reducing the failure of selecting the wrong model by buyers should be explored and investigated in this field. 1.3 Motivation Reverse auction has allured many purchaser companies to start using it in order to maximize their revenue, saving time and broader suppliers base. Before proceeding to any kind of reverse auction, it is very important to understand why it is being implemented and how it works. This is an essential arrangement before starting any type of reverse auction. Simply running a reverse auction program without adequate information about it may lead to failure for the Purchaser Company. In this study I want to provide the buyer a simple comparison between all common models of reverse auction and simulate how it works from buyer perspective. 1.4 Objective Find all common type of reverse auction. Establish a comparison between these types. Build and implement –English auction and second sealed bid auction- small prototypes to test how it works
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