> Why set a reserve rather than just starting the auction for
> the minimum
> that you are willing to sell it for?
A similar question came up on a Jaguar list recently. Here's the little bit
I wrote for that answer:
> Forgive the OT, but something has me puzzled about this bidding
> routine on Ebay. Why would a seller have a reserve that us bidders
> know nothing about?
A few reasons come to mind, Chase:
1) Kaa's Law: Given a sufficiently large group of people, most are idiots.
A lot of both buyers and sellers just don't have a clue.
2) Auction as apprasial. If I put an item up for bid, and I don't quite
know how much it will fetch, but don't want to sell myself short, I can put
a very high reserve in it. The price will keep going up, but the reserve
most likely won't be met. Now I have a pretty good idea of what someone is
willing to pay for it.
3) Psychology. If you saw a high reserve, you might never bid on it in the
first place. But part of the nature of auctions is the frenzy people can
get into, bidding just a little more, until they've bid far more than they
first intended. If you ever go to a live auction, you'll see this all the
time. An item comes up, the auctioneer starts looking for bids at, say
$300. No one bids. After a while, either the auctioneer starts going down,
or someone yells out something like $25. From there the frenzy starts, and
at the end, the item might go for $400 or more.
4) Avoiding transaction fees. Since eBay, and the various payment systems,
take a percentage of successful auctions, some sellers will use a high
reserve to ensure that no one wins, then will work outside of eBay to sell
the item to the high bidder. It's against eBay rules for the seller to
contact the bidders and offer to sell the item outside of eBay, but the
bidders are allowed to contact the seller, and I'm sure both happen very
frequently.
5) Screening. On automotive auctions, the seller can opt to let the high
bidder win even if the reserve hasn't been met. So say I'm selling my
prized car, and want it to go to a good home. I set a high reserve, then
contact the high bidder after the auction closes. If I like him, I may go
ahead and let him get it. If I don't like him, I don't have to budge.
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