I think it is a form of delusion that reserve auctions work. Especially on ebay where everyone is familiar with it. Most people don’t even bother bidding. If you don’t want to take less than $150 then start the auction at $150. My gut feeling is that reserves are done because they see other people doing reserves and they feel there must be some advantage, even if it can’t be shown (and even if it’s actually a disadvantage)… they don’t understand it either and they feel “better safe than sorry” and just go ahead and do a reserve. It’s like putting ridiculous disclaimers at the end of your emails. Other people do it, whether it works or not better do it and be safe rather than sorry. I really doubt anyone has a serious belief that a reserve will bring a bigger price. And I’ve never seen any ebay auctions with low reserve prices show up in a misleading way on a pricing filter. It’s easy to weed those out by ignoring any results with the words “reserve not met” in them.
DO NOT DO Reserve prices. Help make the world a better place. It is a form of minor fraud, a bait and switch, nothing more.
Here in Oz, eBay removed the ability to place a reserve on auctions some years ago. This was done (they claimed) as an experiment, with a view to possibly rolling the change out to the rest of the planet. Experience seems to be that lack of a reserve does not materially affect sellers badly, and probably only helps. Sellers do need to set a sensible starting price. Overall the effect seems to be as described above. The serious bidders simply bid, and the idiots that are hoping for stupidly cheap bargain never bother. Indeed there seems to be an element where a sensible starting price actually attracts interest from serious bidders - they already get some idea of the whether it is worth getting involved in the first place. If you spend your time bidding on $1 starting bid with a hidden reserve, you will quickly get bored, and serious bidders will start to avoid such auctions. With no hidden reserve and a clear and sensible starting bid you know where you stand from the start. So the practice matches serious bidders with serious sellers. Which is rather the point.
On the other hand, the whole thing is somewhat stupid with regards eBay, because eBay isn’t an open cry auction. It tries to make it look as if it is, and encourages early bidding and bidding wars. The reality is that eBay is a sealed bid auction, and if you don’t use a sniper you simply don’t understand how eBay works.
I’ve pretty much quit using eBay because of the whole "you must use PayPal’ thing, but back when I was actually buying stuff, I’d bid on reserve auctions, if I knew what the reserve was. Some sellers told what the reserve was, others didn’t. If the seller didn’t reveal the reserve, I wouldn’t bother even bidding on the item. I hate playing those sorts of mind games, so I won’t participate if I don’t have to. There’s almost nothing unique on eBay, and if one seller doesn’t offer the price and conditions that I want, I’ll go on to the next seller.
Not sure whether we’re talking about online auctions or real-world ones. Not that it matters - online auctions have reserve prices and other auction-like features because they are deliberately trying to mimic the dynamics of real-world, traditional auctions.
Real-world traditional auctions have reserve prices because they have never been about the price rising calmly until the highest bidder in the market reaches his ceiling. The process has inertia and emotional investment - the auction process teases the buyers to bid just a little more, in the hope that they will prevail.
Setting the opening bid at the reserve price wouldn’t work, because buyers in an auction can tend to view the process in terms of endurance as well as price - and (right or wrong) they’ll be expecting the auction to run for the same duration, thus ending at a higher price.
It’s obvious that reserve prices work in real world auctions, because the same bit of psychology also plays out in a smaller way - where the auctioneer has to lower the starting bid in order to get anyone interested - but then it quickly climbs back up above the level of the original starting bid - so the bidders are now engaged at a price they would not originally bid.
Personally, I always put a reserve on auctions that I’ve set, just so I’m not obligated to give some guy something for $5, when it’s worth $300, just because he’s the only guy who bothered to bid on it.
The other reason I do it, is because if it’s an item or combination of items that aren’t commonly sold, a reserve is a good way to find out what the market will bear for that item (assuming that the reserve isn’t met) so that I can assess whether to try and sell it again, and what more effective pricing might be.
As a seller, why would I want to let you know how much I’m willing to let the item go for? Think about buying a car. If you walked onto a dealer’s lot and the dealer said, “The absolute lowest price I would sell this car for is $10,000,” the only reason you would ever offer more than that is if:
You thought the car was worth more than $10,000
AND
Someone else also thought the car was worth more and also making an offer on it.
If you thought the car was worth $15,000 but nobody else was bidding on it, you’d just offer $10,000, right? So it’s in the seller’s best interest to wait for you to make an offer, and then decide if they’re willing to take that offer.
Besides, do you honestly believe that the item is only worth $1? Think about it. If the seller sets the reserve at $150, he obviously believes that the item is worth at least $150. And if he thinks it’s worth $150 and you think it’s worth $1, either he is significantly overvaluing the item, or (more likely) you’re significantly undervaluing the item.
The goal of an auction should not be to get the item for as cheap as you can possibly get it. The goal is to let you offer what you think the item is worth. So if you see an item that you think is worth $200, who cares what the starting bid is? Just bid $200.
Add me to the list of people who won’t bother with reserve auctions.
If the seller wants to play silly mind games with me, that’s annoying, and I’m on eBay to buy stuff I need, not to be annoyed.
If you don’t want to lose your item for too low a price, set a higher starting price.
If you want to estimate the price, look at previous completed auctions for similar items.
If you just want to bait me into becoming emotionally involved, well, good luck, there’s thirty other auctions like yours that don’t play stupid tricks.
I’m not convinced by the idea of using a reserve price auction as a means of finding the market value of an item. Like others here, as a bidder nothing kills my interest mnore than the words “Reserve not met”. I wonder if you’re getting an accurate sample of the market, with a high-ish reserve price. A lot of people who may have bid just walk away and you learn nothing about their valuation of the item.
Even if you are willing to pay more than the reserve you can’t actually bid that due to ebay’s proxy bidding system. You don’t enter actual bid values, you just give the proxy system authorization up to your limit, and it places the bids. It will not meet the reserve price unless driven upward by competing bids.
I think, though I’m not sure, there may be some system built into the auction that raises your bid to the reserve price if your maximum proxy bid was set higher than the reserve. Thought I read that somewhere.
gallan, thanks for your perspective, but I don’t think it really holds up with a site like eBay, at least not for some of its auctions. Your car example, for instance, makes sense if you think of it as a transaction involving a seller and a buyer, but not if you think of it as a transaction involving a seller and thousands of potential buyers.
But if the car really was worth anywhere near $15,000, wouldn’t there be lots of other people who would outbid my $10,000 offer?
Car dealers don’t usually wait for customers to make the first offer, do they? Don’t they usually put a “sticker price” on the car, and potential buyers can try to negotiate it down?
But regardless of how car sales work, eBay auctions are set up so that the seller sets the minimum opening bid. They can also set a reserve price, but as this thread bears witness, it’s a controversial question whether they should.
Why “more likely”? I know what value the item has to me. The seller doesn’t necessarily know what value the item has to me or to any other perspective buyer. They may know the value the item has to themselves, but, since they’re trying to get rid of it, that value may just be “nothing except whatever money I can get in exchange for it.”
Granted, I’m coming at this from the perspective of someone who’s mostly bought things like used books, clothes, DVDs, electronic equipment, etc. on eBay, where the seller wants to get something that they no longer need or want off their hands while making some money in the process. My perspective might be different if I were thinking of things like cars or collectibles, that have a more universally agreed-upon inherent value.
Why not? From the point of view of the buyer, that’s exactly what the goal is. And if I win the auction, the seller has the security of knowing that, though the price I paid may or may not be as much as I thought the item was worth, there’s no one else out there, out of all the multitudes who shop eBay, who thought it was worth any more than that.
Ah,then they have fixed this. I had a couple frustrating experiences when that was not the case, but now that I think about it the last would have been in 2002.
The car may be worth $15,000 to you, but not to everyone else. However, if the dealer opens with an offer of $10,000, it will probably make you question your initial assessment of $15,000. Is it really worth $15k if he’s willing to sell it for $10k?
Yes, but the sticker price is the maximum, not the minimum. You still have no way of knowing what the dealership thinks the car is worth (i.e. the lowest price they’d sell it for). The sticker says $15k. You think it’s worth $15k but you offer $13k not knowing that the dealer would sell it for $10k. If the sticker started out at $10k, would you still offer $13k?
Auctions work very much the same way. You offer $200, someone else offers $250, and neither of you know that the seller would have let it go for $150…unless he started the bid at $150. In that case he sends the message that the minimum he’ll accept is $150. And if he’s willing to let it go for $150, why should you value it at $200? Starting at $1 with a reserve price sends a very different message. It asks you to bid what *you *think the item is worth. Maybe that’s only $50, or $100. The problem is, people see an opening bid of $1 and think, “Hey, I might be able to get this item, which is clearly worth several hundred dollars, for pocket change!”
That’s what I meant by saying that it’s more likely that the buyer is undervaluing the item. If you come across an auction for a brand new xbox 360, with an unknown reserve price and an opening bid of $1, it’s reasonable to assume that the opening bid is not representative of the actual value of the product. Even if we assume that the seller already has an xbox 360 and this new one was given as a gift (and therefore all money received is pure profit), the item itself has a market value of around $300 that plenty of people are willing to pay, so it would still be reasonable to assume that an opening bid of $1 significantly undervalues the product. Practically all items can be valued this way. That antique lamp with the brass base and stain glass shade is obviously worth more than a cheap IKEA lamp, so an opening bid of $1 is also unreasonable.
Which is why I said bid what it’s worth to you. Maybe it’ll be less than the reserve price, maybe it’ll be more.
Maybe it’s just my perception, but I’ve always thought that getting a low price is a side-effect of auctions, not the goal. The goal is to exercise more control over the price of a given item. Instead of a seller setting a maximum price and letting the buyer decide if it’s worth it, the buyer sets the maximum price and the seller has to decide if it’s worth it. The reserve is the seller’s way to decide in advance what offer is worth it, and a lower opening bid is the seller’s way to receive an offer without revealing what they think it’s worth.
Every buyer I’ve heard comment on reserve auctions is in accord with those here who say that the presence of a reserve is itself a disincentive to bid at all. I know that, as a seller, the couple times I tried listing items with reserves, they didn’t sell, and attracted few bids. Whereas I’ve sold a number of things that were offered with low starting prices and were bid up several times over.
So basically I don’t believe the claim that low starting price plus reserve equals more attention and more bids than the same item started at the reserve price.
Honestly I don’t think there are many experienced eBay bidders thinking such things. If something is clearly worth much more than the starting bid, my assumption is that this will be equally obvious to a bunch of other people. How could it be otherwise? And in practice that is exactly the case. I’ve gotten good prices on eBay purchases, but never stupid-low ones.
For something as recognizable and popular as a new Xbox 360, I’d say the seller is probably even safe starting no-reserve bidding at one cent, with free shipping. That will put it at the very top of the search results, get maximum eyes on it. And, I expect, a huge number of bids. Once people have placed their first bids, some of them will be inclined to stick with it and bid it up, rather than giving up and waiting for another to go on sale.
Starting no-reserve bidding at the actual minimum price you’d be willing to let something go for–that’s the cautious, guaranteed-safe approach.
I hate reserves and don’t use them but this is the real reason.
I had an item I noticed in a search where I said to myself “Shit, I didn’t know it was worth anything. It’s sitting in a box in the closet, I’ll never use it, and it just went for $200! Cool! Mine is in perfect condition, much better than this one. Off to Ebay you go!”
I got like $95 for it. Worth more than it was sitting in the closet, but nowhere near $200. Even though dozens of people drove the bidding up to $200 on one a week before.