RON: But then when does it ever end? Do they call back every 15 minutes and go, “Well, one of the eight went to 862.” Then it turns it into an English eAuction, and it's not an auction, you're selling your house. There are some very strict governances when it comes to real estate sales that they can't turn around and just let everybody else know.
So that would be a sealed bid type scenario in eAuction software. There could be two or three rounds of the interactions. The best position would result when a buyer is purchasing from one of the suppliers. So that's if the bid’s from multiple suppliers, or if a supplier is selling a single item, right? So the buyers make their best and final offer and then they come in.
Now, why would you have different rounds on the online auction? Well, different rounds could be everybody comes in and puts in their best offer. Well, let's say I'm selling—and we'll just make it a car, we'll make a simple number, $50,000. I'm selling my car, I want $50,000. The car should be worth $70,000. But I want to reserve, so I'm reserving the right to sell that unless it goes $50,000 or more. But I want to do it on silent bid.
One of the reasons why I might choose silent bid is because silent bid on during an eCommerce auction causes a fear of missing out. [A bidder might think] “Gosh, I've been looking for that ‘69 Camaro forever. I don't want to miss out, I didn't want to spend more than 30. But you know what? I'm going to go ahead and put in a bit of 33. That way I can beat everybody else who's going to bid 30. So I bid 33. Everybody puts in a sealed bid, and the highest bid was 40. And the seller’s like, “Nope, not going to sell.” They may come back and, after reviewing all of the online auction bids, none of the sealed bids came in high enough and have not been accepted. So now, round two.
Now, I don't know what the highest bid was on the eAuction platform. It could have been 49, but I bid 33 and I'm like, “Oh, so everybody under bid and nobody was near, I have to assume that more people bid over 33, so they probably bid up to 40 and that still wasn't enough. OK, I'll bid 43.” Well I'm still under the reserve, but I don't know that.
So now everybody bids and everybody bids in the forties, and then might come back and say again, "Nobody has won this, this will be the final one or we will pass" And they'll say, “What's your final best?” So it can be two or three rounds, they typically don't go beyond that. And so finally the third round, somebody finally bids over 50 and somebody comes in at 53 finally and they're like, “You know what, my reserve was going to be 50. I wanted at least 50 for it. I'll go ahead and let it go at 53, and then I go ahead and let it go.”
So that's sealed bid online auctions. They're very powerful to incentivize, because if there's enough people and enough traffic and enough users worried that they're going to lose out on this very nice, expensive item, it can definitely create an extremely powerful upward force on the price.
Again, governance is the most important thing for the online auction software to handle in this case. You can't just let people go, “Well, I'm always going to say no until number three, because I just want to make more money, right? So maybe part of the governance is you force them to come in and put a reserve, so if during round one somebody beats that reserve, you force them to sell it that way. They just can't come in and every time drive it up by going, “Nope, needs to be higher,” and it forces it through three sealed bid rounds, and then when they get to the highest one, they go, “Yeah, still want more money. I'll come back and put it on auction again.” Well, now the eAuction sites have wasted a lot of time, spent a lot of money promoting that auction just to not have it sell because somebody is greedy.
Governance would control that on a good custom auction website. You might force them, in a sealed bid, to put a reserve before they can go into a sealed bid. That way, if during bid cycle one somebody beats the lowest price, you force them to sell it. Or maybe if less than 10% of the bids actually meet the reserve price, you're allowed to go one more to see if anybody had better their bid, and that would be something done through the governance. Reverse auction software can give you additional options.