Negotiation? Auction? A deal maker's guide

When you have something to sell, the best way to get a good price for it is to hold an auction, conventional wisdom tells us. The success of the online giant eBay is a monument to that belief, and a lot of academic research supports it as well. Auctions aren't just for ordinary folks trying to dispose of antique teddy bears or 1970s wallpaper, either. Executives routinely auction off divisions or subsidiaries of their companies; after all, who can fault them for the prices they get if those prices are the outcome of a competitive bidding process? Auctions have gained popularity with buyers, too, especially since the advent of the internet. In reality, however, auctions don't always produce the most satisfying results. Take a closer look at what happened with e-auctions. Many buyers soon learned that while online auctions were great at creating price competition, they couldn't deliver meaningful competition on service and quality. At the same time, suppliers started to withdraw from e-auctions, believing they couldn't earn reasonable profits by participating. But at the root of the pullback from e-auctions lay a more subtle problem: They set up a win-lose relationship between supplier and customer. Reverse auctions can create the opposite of the collaborative supplier-customer partnerships held up as a best practice by many today. Forming such partnerships requires a more thoughtful process, one that allows buyers and sellers to exchange information and work toward an outcome that delivers the maximum value to both. In short, it requires a negotiation.