Sealed Bid Reverse Auction Price-Protection Mechanism
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Solution Overview
Problem
Existing sealed bid reverse online auctions face challenges such as low participation due to uncertainty and fear of underbidding, lack of incentives for bidders to submit lower bids, and risks of unfair bidding practices, which can lead to buyers paying unreasonable prices for goods and services.
Innovation Solution
A system and method for conducting sealed bid online reverse auctions that includes bidder categories with price-protection fees, allowing bidders to commit to pay a fee for participation, and recalculating winning bids based on the difference between their bid and a designated bid, providing incentives for fair pricing and reducing uncertainty.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Ease of operation
If sealed bid reverse auctions are conducted without bidder categories or price-protection fees, then the auction process is simple and easy to operate, but participation is low due to uncertainty and fear of underbidding
Solution Approach 1:
The patent segments bidders into different categories (e.g., Category 1 bidders who bid without price-protection fees and Category 2 bidders who bid with price-protection fees). This segmentation allows the system to accommodate different risk preferences and bidding strategies, thereby increasing overall participation while maintaining operational simplicity through standardized category rules.
Solution Approach 2:
The patent introduces price-protection fees as a new parameter that changes the bidding dynamics. By allowing bidders to opt into different fee structures, the system transforms the单一的 bidding parameter into multiple parameters (bid amount + optional fee), enabling bidders to manage their risk exposure and encouraging greater participation.
2Device complexity
If sealed bid reverse auctions are conducted without price-protection fees, then the auction is easy to conduct, but bidders have no incentive to submit lower bids and may significantly underbid leading to winner's remorse
Solution Approach 1:
The patent requires bidders to preliminarily commit to paying a price-protection fee before submitting their bids. This preliminary action ensures that bidders have skin in the game and are more likely to submit reasonable bids, reducing the risk of significant underbidding and winner's remorse while maintaining auction integrity.
Solution Approach 2:
The patent implements a feedback mechanism where the price-protection fee is calculated based on the difference between the winning bid and a designated bid. This feedback structure incentivizes bidders to submit competitive yet reasonable bids, as excessively low bids will result in higher fees, thereby improving bid fairness without significantly complicating the auction mechanism.
3Reliability
If price-protection fees are implemented for bidder categories, then participation increases and bid fairness is improved, but the auction mechanism becomes more complex
Solution Approach 1:
The patent manages complexity by clearly segmenting bidders into distinct categories with well-defined rules. Category 1 bidders follow a simple bid-only process, while Category 2 bidders follow a standardized bid-plus-fee process. This segmentation organizes the complexity into manageable, predictable structures that are easy to understand and implement.
Solution Approach 2:
The price-protection fee mechanism serves multiple functions simultaneously: it increases bidder participation, incentivizes reasonable bidding, compensates for auction platform operations, and provides a reserve price equivalent. This multi-functionality justifies the added complexity by delivering multiple benefits from a single mechanism.
Data Source
AI summary
Disclosed is system and method for sealed bid reverse online auctions through remote computer devices according to a set of predetermined rules, where the reverse auction includes sealed bids, and assigned random identification numbers for auction bidders. The system allows bidders to opt into one of two different bidding categories. Category one requires payment of the winning bid amount. Category two requires a commitment to purchase a price-protection policy, allowing recalculation of the final winning bid amount based on a price-protection formula calculated by subtracting the price-protection fee from a sum of the lowest or winning bid amount and an amount equal to a predetermined percentage of a difference between a next lowest bid amount and the lowest winning bid amount. The system also allows for the allocation of at least a portion of the price-protection fee.