Fans of online reverse auctions, or e-auctions, can cite some big numbers —and some big names — to support their case. In 2001, for example, General Electric expected to generate more than $600 million in savings by putting $12 billion in contracts up for bid online. “The concept of reverse auctions was right in the GE sweet spot,” legendary CEO Jack Welch told shareholders in his April 2001 farewell address.But those numbers don't tell the whole story, according to research by Sandy Jap, associate professor of marketing at Emory University's Goizueta Business School in Atlanta. As she reports in a July 2001 working paper titled “The Impact of Online Reverse Auctions on Buyer-Supplier Relationships,” online reverse auctions can potentially hurt a buyer's long-term performance by sowing distrust among its suppliers.In a reverse auction, buyers and sellers swap their usual roles. The sellers compete for the opportunity to supply a product or service, and as bids come in, the price goes down. By putting these auctions online, buyers can streamline the process of collecting bids and deal with many sellers at once. That creates the potential for substantial savings by stimulating increased supplier competition.I
