eBay Reserve Auctions Revisited

This is Part II of our analysis of the utility of reserve auctions. Read Part I of our Reserve Auction Series

A while back I posted an article that summarized a university economics study that concluded reserve auctions produced less revenue than regular auctions. Today I’ll discuss a study that concludes the opposite - namely that reserve auctions generate higher revenue. The discrepancy between the two studies might lead some to confusion, but actually the different conclusions provide important insights into when auction sellers should employ a reserve price and when they should avoid it.

A reserve auction listing is one in which an eBay seller opts to set a secret minimum price. If the auction does not produce a bid that exceeds this reserve price, the auction does not result in a sale.

The study, “Pennies from eBay: The Determinants of Price on Online Auctions,” analyzed the data associated with over 20,000 listings of collectible U.S. pennies auction on eBay during two months during the summer of 1999. The average price these pennies sold for was $173.20 and the price range spanned from $4.99 to $3,500.00US.

When controlling for the other factors that influence the closing prices of eBay listings, the studies authors found that the “presence of a reserve price increases the auction price by about 15% on average, and the effect is statistically significant.”

So we have two studies analyzing the effects reserve prices that draw opposite conclusions regarding the benefits of this online auction tactic to sellers. While it is easy to conclude these studies are of little utility because they contradict each other, this is not necessarily the case. The first paper’s sample was strictly limited to inexpensive items - specifically Pokemon trading cards selling for less than $25.00. The second study focused on collectible pennies which had an average sale price of nearly $200.00.

Therefore, we can conclude that employing eBay reserve prices for inexpensive goods results in reduced income for sellers while reserve auctions increase revenue for more expensive items.

The study, “Pennies from eBay: The Determinants of Price in Online Auctions,” was published in January 2000 by David Lucking-Reiley, Doug Bryan and Daniel Reeves of Vanderbilt University.

Reserve Auctions Make Less Money for Items Under $100

eBay Reserve Auctions - “I’ve got a Secret”

Study Identifies Strategies of Successful eBay Sellers

Four Huge Mistakes Ebay Sellers Make

Auction eZine - Issue 9