An efficient reverse auction mechanism for limited supplier base

Reverse auction degrades the buyer–supplier relationship and decreases the suppliers’ interest to participate in subsequent auctions. The effect is particularly severe in a limited supplier base. We propose a novel multi-attribute relationship-preserving reverse auction mechanism for a limited supplier base. The mechanism consists of two parts: first, evaluation of suppliers’ utility with an idea of intermittently awarding some business to each one of them as incentive and second, a penalty scheme integrated with winner determination model to deal with the untruthful behavior of the buyer and the suppliers. The mechanism enables healthy competition among the suppliers by retaining them in the supplier base. The simulation study interestingly shows that a buyer derives higher utility by using the proposed mechanism as compared to the existing mechanism where no incentive is provided to the suppliers.