Beginning Low and Ending High in eBay On-line Auctions
By: nikky Howard
Submitted: 2010-07-30 20:27:06 | Word Count: 893
It's the customarily said that ?0.99 no reserve auction are the best approach to encourage bids and lead to higher prices. In fact Auctioning4u eBay Drop Off Search lists most of its items using this pricing strategy. But up to now this theory was additional anecdotal than based on actual data.
A recent paper by Gillian Ku of London Business Faculty, Beginning Low however Ending High: A Reversal of the Anchoring result in Auctions has investigated the effect of beginning value on the ultimate price of on-line auctions and discovered that it's indeed the case that low beginning costs increase ending price. Ku et al have discovered that 3 effects of lower starting costs cause higher ending prices:
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* Lower beginning prices reduce barriers to entry, which will increase bids and generates higher costs
* Lower beginning prices entice bidders to invest time and energy, increasing their commitment to the auction
* The extra bids generated by lower starting prices infer value in the item, encouraging a lot of traffic
These findings are at odds with previous research on negotiations that finds that ending prices were highly connected to starting price. In the more social environment of auctions (especially on-line auctions like eBay), this trend is reversed. Ku performed six studies to research the effect of beginning worth on ending price, many of that were related to eBay (these are studies two, 3 and five detailed below).
Study 2: Beginning low and ending high on eBay
The results of eBay on-line auctions were analysed to determine the relationship between staring and ending prices. For this study, 2 sorts of auctions were identified:
* Independent worth auctions. These are highly individual auctions where the worth is tough to predict e.g. collectibles
* Common value auctions. Auctions of common things where there is a market price.
For the freelance value auctions they select to analyse Tabriz Persian rugs and for the common value auctions Nikon digital cameras. The subsequent results were found for both sorts of auction
* Lowers starting worth auctions were additional probably to be successful
* Lowers beginning costs auction leads to additional bids and a lot of distinctive bidders.
* Lower staring prices resulted in higher ending prices
Study three: Escallation of Commitment on eBay
This study kicked off to investigate the result of escalation of commitment on costs rises. Is it the case that when the bidder has placed a bid they have invested time and are a lot of possible to bid once more?
Ku et al centered their attention on a particular eBay seller, Browncow, who sells Hawaiian shirts starting at $9.99 and $24.99. Analysing the results of 89 auction made the following conclusions
* Low staring prices bring bidders into the auction early
* Low beginning prices encourage bidders to accumulate sunk costs into the auction. Low beginning worth winners have spend more time within the auction and create more bids than low beginning price losers or bidders in high beginning price auctions.
Study four Inferring value from Traffic and Current Costs
Test subjects were asked to judge the proper worth of an mocked-up eBay item (holiday package) with that they were presented. It absolutely was found that the quantity of bids that the things had lead to higher valuations.
Study five Beginning Low and Ending Low on eBay
This study found that for auctions where there were less bids, the starting value did have an impact on ending price. By comparing the end result of similar items where there were misspellings in the titles, it absolutely was found that this created a barrier to auction traffic, reducing final prices
Lessons from research
The results of this analysis will not return as a lot of of a surprise to eBayers, however it's nevertheless fascinating to have analysis to make a copy commonly quoted conceptions. I think that the following lessons can be drawn from the paper:
* ?0.ninety nine NR auctions work well for widespread items with plenty of search traffic and result in higher costs
* Less fashionable things (rare) are not suitable for this sort of auction strategy.
I suppose that the results of this research are most relevant to individual sellers, selling in low volumes with using simple sales strategies. When selling in giant volumes, the market prices will drop if too many items are listed and it's thus necessary to extend beginning costs or use fixed worth auctions to compensate.
Comments on the Analysis
There are a number of factors affecting the ending costs of "eBay Online Auctions" such as beginning time, ending time, seller feedback, postal rate etc. There's no indication during this paper that these factors are taken into account.
The paper talks about auction traffic, bearing on the number of bids on an item. I assume that another interesting study would be to match the quantity of views of an auction with starting worth to establish if there's a relationship.
Author Resource:-
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