Practices make perfect market — a case study on sustaining an active e-auction market

The objective of this paper is to clarify how the online reverse auction can perform as well as the “market maker”. This real-time, dynamic, open bidding process typically results in significantly lower unit prices than for buyers who have paid previously, and it has proved increasingly popular among Fortune 2000 companies. As a global, online sourcing market, many companies have embraced the e-auction as the realization of Adam Smith’s perfect free market to inspire price competition. However, yet many others consider that it presents many challenges, from squeezing suppliers’ profits, jeopardizing long-term relationships, to procurement quality deficits. This study, tries to deconstruct the innovative elements of this online bidding technology by scrutinizing the unique and systematic practices executed by one of the most successful companies adopting the e-auction, Singapore Technology Engineering. This company demonstrates that only by exercising well-defined practices, including establishing disciplined “codes of conduct” to regulate both buyers and sellers, can the e-auction perform as an active, perfect market maker.