It only discourages bidding for two types of people:
Retaining type 1 is no benefit since they wouldn’t have bought the item anyway–all you’ve done is waste their time. Retaining type 2 is a benefit to the seller, but smacks of being a dishonest psychological trick.
That is somewhat reasonable, but are there really that many items which are simultaneously so valuable/unique/whatever that the seller isn’t willing to take a risk on a low-ball price, but also so common that information for future sales is useful?
Suppose I want to sell a painting, but I actually quite like it and won’t part with it for less than $1000. It misses the reserve price by $10. If my original $1000 was accurate, then I shouldn’t be willing to sell it for $990 (and definitely not $500).
Or suppose that I sell widgets for a reserve of $100. I get them from my supplier for $80 and I have $10 of overhead. But they only hit a price of $90, so I’m just breaking even, and therefore I go to my supplier and see if I can get a price break. Makes sense, except that it’s not like I’m out a ton of money if I didn’t set a reserve price at all and it only hit $90 (or $50, or even $10) for the very first sale.
How is it dishonest? It’s up to the buyer to decide how much he thinks the product is worth to him, and if anything, setting the opening price low and letting people bid it up just gives the buyer more information about the worth of the product, or at least, what other people think the worth of the product is. And I don’t have a moral responsibility to make sure the buyer pays the lowest price possible. If he decides to pay more than he originally appraised it for, that’s his choice.
Is there an impact on the fees paid for listing the item at auction?
Ridiculous. Buyers have money, sellers have goods, and both want what the other has. The whole point of an auction is to allow both parties to meet in the middle somewhere. The rules should be as symmetrical as possible.
That said, reserves are probably fair since (as I said) they give a similar benefit to sniping. In fact, I think if everyone snipes and the seller uses a reserve, the auction turns fully blind–though unlike Vickrey’s in that it uses first price.
Well, I didn’t say it was dishonest, just that it smacks of that. More like a casino than a conman.
In principle, the valuation that other bidders put on an item should be irrelevant to a bidder. Either the item is worth $X to a bidder, or it isn’t, and this should be known in advance.
Marketers use all kinds of games along these lines. A related one is the anchoring effect, in which a price that looks high on its own doesn’t look so bad when presented against some much higher alternative price.
I got caught up in a couple of bidding wars before I realized what was going on psychologically (fortunately, I still lost). My fault? Sure. The point is just that it’s a trick.
No, you don’t have a moral responsibility to ensure bidders pay the lowest price possible. Of course, no one is advocating that. Eliminating reserve prices would just add a tiny bit of transparency.
It is considered normal to query the seller of a reserve auction (privately) his or her reserve price for the item. Sellers will usually respond. That being said, I will always avoid reserve auctions. Something about them I do not like. Maybe cause I feel it’s not a real auction
The point of an auction is to have multiple buyers bidding against each other to the benefit of the seller. The seller has the object therefore the seller has the power and the rules are in the favor of the seller. The competition is between individual bidders, they are competing against each other to get the lowest price possible; they are the only party that should have equal rules.
The rules are set up by eBay or whoever, and from their perspective sellers compete with each other as much as buyers do. It is in their interest not to anger either set too much since auctions depend on both equally.
Furthermore, there are a large number of auction types and they do not all strike the same balance between buyers and sellers. In fact, it is not even a zero-sum game–some auction types can favor both buyer and seller as compared to other types.
…and the potential buyer has the money, therefore the buyer has the power—just as in any other transaction in which someone buys something from someone else.
Look, what I and, I think, the OP have in mind in this thread is eBay (and similar sites). I suspect you and some of the other posters are letting your experience with “real live” auctions color your thinking. If I understand correctly, in a traditional live-in-person auction, the items for sale tend to be valuable and often unique, like horses, houses, art objects. Some of the items sold on eBay may be like this, but others are like the kinds of things sold at garage sales.
The name of the game is to get that first bidder. The first bidder has a big effect on other potential bidders. They are more inclined to believe the seller is legitimate if they see someone has bid. Setting a ridiculously low initial price helps this a lot. (And on eBay, one component of the fees is the initial price. But the reserve price fee negates this.)
Auctions are all about psychology. People do not act rationally in auctions. What should be reasonable behavior on the part of sellers/bidders is not nearly as profitable as gaming it to one-up the irrational other bidders (or sellers).
I never bid on an reserve price eBay auction. The overwhelming majority of reserve prices are unrealistic and not worth my time. I am hardly alone in this. So the sellers lose a lot of potential bidders. The punishment fits the crime. If sellers were more rational about setting reserve prices, it’d be a different story.
I’ve done this a couple of times (although the starting bid wasn’t so ridiculously low) Mostly I wanted to see if anybody was willing to bid what I wanted to sell the item for. The other day some guy came within $7 of my reserve price and I sold the item to him. Who was hurt?
I knew a guy who took advantage of this for years before eBay tossed him. He would list an item with a $200 reserve and $1.00 starting point. He wanted to get $75 for the item and pay as little to eBay as he could. The bidding would eventually reach $100, but not his reserve. He would then contact the high bidder(s) and offer the item to them (outside of eBay) for $85.
To eBay it was a non-sale. The buyer thought they got a great deal. But, eventually he was reported and his account dropped.
This is a very valid point. A friend of mine had a framed document signed by Francis Lightfoot Lee (a signer of the Declaration of Independence and an early advocate of independence). He had no idea what it was worth, and put it out for auction with a reserve price, willing to pay the auction house’s fee to see how hot the bidding got without risking losing it at too low a price.
One Issue (might be a problem, depending on perspective) with such listings on ebay is that at least two serious bidders are required to meet the reserve. If there is but one bidder, they can enter a price greater than the reserve, but the proxy bidding system will only bid the starting price, or enough to beat the cheapo-bidders.
This might meet the wishes of the seller, as having at least two serious bidders makes it likely that he will get fair market value for the item. If the bidding started at the reserve, then it would sell for that price if there were only one serious bidder.
However, it can hurt if the there is a limited market for the item. One serious bidder acting alone has no way to meet the reserve, and the item goes unsold.
I don’t see it as a problem because I know going in the seller has a reserve amount. I can just put the bid in for the maximum I will pay, and either it meets the reserve or it doesn’t. Having a reserve won’t change what I am willing to pay for it.
But it does waste your time looking at an item, thinking about whether to bid, and how much to bid, when you never actually have a chance of winning it even if you’re the legitimate winner of the auction.
Does Ebay let you filter out reserve auctions? Maybe I’d find it less obnoxious if that were the case.
[quote=“ftg, post:31, topic:590323”]
Auctions are all about psychology. People do not act rationally in auctions. What should be reasonable behavior on the part of sellers/bidders is not nearly as profitable as gaming it to one-up the irrational other bidders (or sellers).
QUOTE]
This is why you have a reserve auction.
If you have an auction with a low starting bid it attracts all bidders, people who want to get a super low deal, and those who want the item.
What happens in real life is that the perceived value of an item goes up when you know there are others who want the same item.
If you see 6 people are bidding and they think an item is valuble you use their perceived judgment to bolster your own opinion that this item is high value and in demand.
The actions of the other billers reinforce your desire to owen the item.
Happens every day.
No reserve auctions are better, but if you have no real idea of an items value you can test the waters with a high reserve and relist it when reality sets in.
I prefer to set a no reserve auction with a high buy it now price. It sets the stage for a high perceived value and encourages bidders to try to get it for a “bargain” price.
In fact after I get some low price activity I sometimes have buyer pay the to high buy it now price, just because they can guarantee a win.
I just sold a pair of boots for twice what I just bought them for on eBay using this technique.
They do, all the time. Every pre-priced item you buy in a store is this kind of sale.
But that’s not an auction.
I don’t bother with Reserve auctions. Generally, they are a waste of my time. I bid, I don’t meet the ridiculously high reserve- what’s the point?
Some sellers have admitted (anonymously) to using Reserve auctions to get a dandy free estimate of what the item is worth, with no intetention of selling it. Yes, they do have to pay a small listing fee, but a estimate is even more expensive.