Ebay - Why do people use reserves?

Not wanting to hijack the other thread, I’m creating my own.

Why do sellers use reserves when selling things? If they want a minimum amount of money, shouldn’t they just set it to the minimum bid?

I can only think of one reason. People want their item to Appear cheap in the index, but in actuality it costs more than listed.

This seems like a pretty shady business practice to me. So, how 'bout it. Some reasons for using reserves in Ebay?

I think you hit it right on the head; they want to attract lookers with a low minimum bid, but thy don’t want to actually risk selling it for that amount. I agree, it is much better to just let your minimum bid reflect just that; the minimum you are willing to accept. I believe you get more bids that way anyway. Also, you must pay a small fee for reserve auctions, that’s another reason why I don’t use them.

I’ve tried to figure this one out myself and can only surmise that it is, like others, simply a matter of what one considers to be a good selling strategy.

Say for instance that you feel you must receive a minimum of $200 for an item. One way to do this is to start the bidding at $200. Unfortunately, unless this item is in high demand at a higher price, you will probably get very little interest, since most people want something for nothing.

The other way to insure your $200 is to set a reserve and hope that people will think the reserve price may be lower than the market value (it seldom is) and will start bidding, and that somehow a bidding war will erupt and riches will abound. Again, most people avoid reserve auctions unless they absolutely have to have the item.

I don’t believe that it’s a shady practice at all, just not a very smart way to sell. It’s been my experience that most reserve sellers will tell you the reserve price if you ask. The ones that won’t don’t get my business, since it’s a waste of my time to try to guess where the hell the seller is sitting, and some sellers have an inflated idea of what the item is worth. As always with eBay, and as clearly stated by them, its caveat emptor.

I hate reserve auctions, but I imagine another reason for using them is that you get a sense of how much people are willing to bid for your item, even if you wouldn’t sell it for that low amount. If you set the minimum bid too high, you don’t know what the market for your item is, you just know nobody want to spend that much.

Doesn’t it affect the seller listing fees?

Not only does it affect the listing fees, the seller is required to pay a percentage of the reserve price even if the item doesn’t sell

Some people set an unrealistically high reserve in order to get an “appraisal”. They have no intention of selling at the time but want to know “what it’s worth on Ebay”. They then decide whether or not they can get more locally or on Ebay. Lots of estate items (paticularly art) are run through Ebay by estate auctioneers for that reason.

FYI, reserves are long traditions of real auctions–those things that were held before eBay existed? It’s just a carryover. In live auctions, people are often trying to move up to 100 lots an hour, over the course of a whole day. Long and tiring. So they don’t waste time with bids beginning at $2 for an original Renoir, etc. They set the opening bid at, usu., 80% of its minimum assessed value (although sometimes this is left up to the discretion of the auctioneer, who will use his judgment to read the crowd and determine how things might sell).

The reserve, always a secret, is set jointly by the auction house and the seller, and is often (though not always) also 80% of the minimum assessed value.

In all, it just keeps the mystery there. Nowadays, eBay is so efficient at reaching real market value for items that it, frankly, makes little sense to have a reserve at all. It’s practically become retail. Things on eBay aren’t usually so rare that the true value is not known, or that there aren’t a million similar items for sale on the same day (so that you can see what people are actually willing to pay for that item).

Oh, and btw, in live auctions, if no one accepts the opening bid, the auctioneer usu. has the authority to try a lower figure. If it drops below what he thinks is reasonable, he is permitted to simply withdraw the item from bidding altogether.

It can make financial sense for a seller to start with a low starting price + a reserve - from a related thread:


Another reason for a reserve:

Interested bidders can enter a low bid; even if they don’t meet the reserve the item will still show up on their My Ebay bidding page. Many people wait until literally the last minute to bid on an item; this is known as sniping. You’re (as a bidder) more likely to go back to an item if you’ve already expressed an interest in it; also, eBay can send you emails when you get outbid.

Aside to Chefguy: it only takes about 30 seconds to place a bid on ebay, less time than it takes to compose an email to someone asking what their reserve is. Why not just bid the maximum you’re willing to pay, ignore the fact that there’s a reserve, and let the proxy system do what it was designed to do?

That’s my general SOP and I win a lot of bids that way. It’s only when I’ve made what I consider to be a fair price bid and the reserve is still not met that I ask for the reserve. Sometimes the reserve is just not realistic and there is no point in pursuing it further; sometimes it’s just above what I have set as my limit price and I’m willing to go to that level.

I tried to figure this out, and I believe it is a matter of perception. Here’s what I mean:

Imagine you are interested in an item, and two are listed. From the description, they sound to be somewhat equivalent.

Item – Current price – Number of bids – Reserve

#1 ----- $2000 ----------------- 0 ------- none
#2 ----- $2018 ---------------- 21 ------ met

Which one would you rather bid on? My first reaction is “What’s wrong with the one that no one bid on? Is there something I missed?”

This is flawed logic, but I still have that sense that there’s “something wrong” with #1 that I missed. But the sellers for #1 and #2 both wanted $2000 minimum, #1 set up the minimum bid as $2000, and #2 set the minimum bid at $200 and the reserve as $2000.

I’ve seen this happen several times when looking at very expensive speakers on e-bay. I’ve put together this theory based on my own instincts (which I know are flawed), and the fact that it isn’t uncommon to see concurrent auctions on the same equipment end very similarly to items #1 and #2. I think it plays on people’s sense of safety in numbers – “20 people already bid on it, it has to be good!”

glilly, there are other factors to be considered, esp. in the category you specified. I also watch the speaker market on eBay (although only certain brands), and have noticed that due to the expense of shipping something so large, a speaker system being sold near a major metropolitan area will usually fetch more than an equivalent item in southern North Dakota. Also, don’t forget about the wording of the auction, the quality (or lack thereof) of accompanying photographs, and lastly, the seller’s feedback and length of time on eBay.

I typically go against the grain; all other things being equal, I’d be more likely to bid on the item with no bids. There’s rarely any reason to assume that all the other bidders have information that I don’t.

I’m quite aware that there are other factors. However, those that you listed are immaterial to the OP’s question. That’s why I said that of two items, they seem to be somewhat equivalent. What that is supposed to mean is “all else being equal,” but didn’t use that phrase because someone would come along to nitpick that no two auctions are the same.

I’m sure you’re logical enough to ignore the herd mentality that carries many auctions. However, that is also immaterial to the OP’s question. Though you know to avoid the “everyone else is bidding for it” mentality, it seems as though you are in the minority on e-bay.

Haven’t you seen auctions end they way I set it up in my scenario? I’ve seen it many times (especially with Martin Logan speakers). If you look at any invidividual auction with this outcome, who knows why one sold and the other didn’t get a single bid?

However, I’ve seen it enough times to identify the trend that high dollar items that start with low minimum bids are more likely to succeed than similar items that start with very high minimum bids, which often end bidless.

If this is true, it would be better to start with a low minimum. If you wanted to guarentee a price, you could use a reserve. This is a reason someone would use reserves.

I noticed this while researching prices before selling my Martin Logans. Several ML auctions came and went without a single bid. In every case, the opening minimum bid was high (even though it was lower than the final bid of equivalent speakers).

A side note: auctions in which the shipping costs are stated in dollar terms seem to be more successful than ones that just say that “buyer will pay all shipping costs.”