13/11/2008

On online auctioning and people's strategies

I've used online auction sites a little, mostly to buy stuff, but soon we'll have stuff to sell, so I've been doing more thinking about it. More specifically, how to set the reserve price, relative to how much we actually want to get out of the item.

See, my philosophy is this. The reserve price should be slightly lower than the price you want, to hook people in (or, for a really popular item, set the reserve to $1, and let the fun begin), then watch the price skyrocket. Well, that's the idea anyway.


One of the things I enjoy doing at eBay is something called bid sniping. Within a few seconds of the sale closing, you place a bid higher than the last bid, and hope to win the bid that way. The thing is, though, for a really popular item, others will also be bid sniping too, so you have to be sure to go above their snipe bid (if you want the item enough). It's this counter-sniping that helps drive the price up, and increases the excitement level for everyone involved. To me, bid sniping is one of the main attractions of online auctions.

TradeMe has this option called auto-extend that sellers can use. The idea behind auto-extend is that if a bid is placed within two minutes of the closing time, then the auction is extended for another two. Of course, this completely kills bid sniping (and the resulting excitement), so I will not be using that for any of my sales.

I should explain why I brought up the excitement factor. To me, the risk is part of the online auctioning experience, and why I even bid at all. I actively avoid bidding in sales that don't allow bid sniping. For that reason, by not using auto-extend in my sales, I am betting that it will result in more bidders, and thus a higher sale price in the end.


I have a few things to say about reserve prices and Buy Now prices too. I have seen some people set their reserve price at the Buy Now price. This is completely stupid: if a buyer actually will meet the reserve price, they may as well Buy Now, and not bid at all.

My preference is to set the Buy Now price at, say, twice the value of the reserve price (well, unless I'm using a $1 reserve price, in which case it'll just be a price well above what I expect the final bid to fetch). It's a way to have ‘sure money’ from someone who wants the item enough to pay the price for it, without wanting to risk the chance of being outbid.

In other words, if I use Buy Now at all, I set it at a price that I don't ever realistically expect someone to pay. Say I'm selling my current (one-year-old) laptop, and I want to sell it for about $750. My Buy Now price would be $1000, and my reserve would be about $500.

Some people seem to have this fear of using a low reserve price, as if that will be the final price they will have to sell their item at. I say, if your item is in high demand, you have nothing to fear. And if it's not in high demand, don't sell it via auction.

There, I'll get off the soapbox now. :-P

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