Jan
8
This is Part I of our analysis of the utility of reserve auctions. Read Part II of our Reserve Auction Series
When it comes to eBay, there’s an abundance of “conventional wisdom,” but often not a lot of facts to back them up. This often leads to conflicting information. Such is the case with reserve auctions. One school of thought argues that a reserve auction coupled with a low opening bid can produce a significant amount of bidding (and a higher sale price) while the other school of thought argue that a secret reserve price tends to make serious buyers more prone to click the back-button than the bid-button. Now there are facts to help clarify this issue - at least for inexpensive goods. A recent study published by two economics professors at Stanford and the University of Arizona concludes that opting for a reserve auction produces lower revenues for eBay sellers.
eBay, like brick and mortar auction houses, permits the seller to opt for a reserve auction. A reserve price is a minimum bid which must be met for the auction to close with an actual sale. eBay keeps the reserve price secret, but does inform potential bidders of a reserve auction by posting a notice that states, “the reserve price has not yet been met,” or “the reserve price has been met.”In their April 2005 paper, “Public versus Secret Reserve Prices in eBay auctions: Results from a Pokemon Field Experiment,” Professions Rama Katkar and David Reiley sold 50 matched pairs of Pokemon collector cards on eBay. Half of the cards they listed with an opening bid of 5 cents and set a secret reserve of 30% of the card’s book value. For each card listed at a reserve auction, the researchers posted a identical card two-weeks later with an opening price of 30% of the book value and no reserve price.
The results were convincing. The percentage of no-reserve auctions resulting in a sale was 72% while only 46% of the listings with a reserve price sold. Additionally, they found that no-reserve auctions earned, on average, a 90% higher final sale price than those with a secret reserve.
The researchers controlled for the other aspects of internet auctions that normally affect the final sale price. The descriptions were identical, the card conditions were the same, start and end times were identical and the seller’s feedback rating was the same (zero). Payment and shipping options were the same as well.
The study concludes that while reserve prices are not in the best interests of sellers who are selling items that are relatively inexpensive (under $100), reserve auctions might be appropriate for more expensive goods. They suggest another experiment to evaluate this hypothesis.
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I have been reading this blog for a while now, and I thought it would be proper to leave a note of appreciation here.
Many Thanks,
Jim Mirkalami