One of the most puzzling aspects of online B2B auction is the increasing use of auction split in multi stages. One of the options proposed in online auction is to conduct a two-stage auction where the number of possible suppliers is narrowed in the first stage of the auction and the supply contract is awarded to the winner of the second stage via first-price sealed-bid auction. This paper derives the strategic properties of such a mechanism and explain why the use of a multistage mechanism rather than traditional direct mechanisms can be justified from the point of view of a revenue maximizing auctioneer. Assuming risk aversion and that bidders participating in a first-price auction incur a compu- tational cost which may discourage entry, we show why the dilemma of choosing between English (which favors participation) and sealed-bid auction (which favors aggressiveness) can be solved by the use of multistage auction.
