Monday, August 31, 2015
Auctions versus Posted Price
The Economist is reporting that auctions are no longer the main way items are sold on Ebay. Current research indicates that only a fraction of this decline can be explained by a product mix moving toward more mass-produced items or to more professional sellers. The conjecture is that the higher hassle costs, including sniping, are driving buyers to fixed price offers.
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You know I like this one. In the early days of e-bay I was an actual sniper. I waited patiently until the final seconds of an auction to make a final attempt to outbid a rival for an old Star Wars action figure, vintage Lionel train or a Spuds Mackenzie beer sign. It was thrilling and new. I didn’t always think about what I valued the item at, I just knew that I wanted it. I definitely overpaid at times. I was also a seller that was keenly aware of what I valued my item at. I definitely reaped the benefit of an over paying sniper at times. Fast forward 20 plus years and things have changed, we have a better understanding of an items’ value now. This is why we prefer to use the buy it now or make an offer options on eBay.
ReplyDeleteI have several niche hobbies, many of which evolved with the rise of e-bay. I grew up racing BMX bicycles in the 70’s and 80’s. In the 90’s old racers like my-self began collecting vintage race bikes. We purchased them at yard sales, took them off our neighbors’ hands before they tossed them to the curb or simply picked them out of the garbage when they did. The internet introduced us to forums where we could display our treasures; it also offered us an opportunity to find our holy grails. At first the community was small and we were all finding nuggets everywhere, so auction prices were fair and trades were routine. We would simply trade a part that we did not value for one that we did value, barely thinking about the actual potential monetary value. As more people found the hobby there was more surplus but even more demand; auction prices became higher and trades became a little more complicated. Value was being determined, collectors began to understand how rare or flat out desirable certain parts were. The value was basically the highest price that someone else was willing to pay! Another twist was added when collectors began finding new old stock (NOS) parts laying around old bike shops, all over the world. Now we had markets for several different categories of parts or bikes. We had used items, restorable items, restored items and the most desirable NOS items; all with its own minimum value. It all became very complicated; there were absolutely no more hand shake deals or trades. If you wanted an item then you had to bid and you had to outbid everyone else. It became cut throat, there were cartels and cheats. Collectors and old bike shop owners began e-Bay stores, driving the bidding prices even higher.
Fast-forward to 2015 and there is still a ton of activity, but the bidding wars aren’t out of control. We are not finding these treasures in the garbage anymore and all of the old shops have been cleaned out. The market is still pretty good, but it seems private sales are the best option to get what you want. You will pay but you will get what you want. Most of the action on e-Bay is completed with the buy it now or best offer with a reserve options. Right now there are high valued sellers with great reputations, you can easily find what you want with little hassle. There are also high value buyers that you know will pay top price, if you want to dump an item. The entire hobby has evolved. It was a very interesting period in my life to watch how the hobby grew and how eBay actually help guide the market. I really enjoyed this chapter of our readings (Froeb ET all, 2013) and believe that I have actually experienced every topic that was discussed. In closing there is a very strict rule in the hobby; you never ask what your item is worth. We say this because we know its’ worth whatever the highest price someone else is willing to pay for it.
JG
Froeb, L.M., McCann, B.T., Ward, M.R. & Shor, M. (2014). Managerial Economics: A Problem Solving Approach. Mason, Ohio: Southwestern Cengage Learning.
It is interesting that people have given up the hassle of auction pricing for the comfort of fixed pricing. Technically auction pricing could save the buyer money but it seems the risk is too great in most cases for buyers to be bothered with. Having been on Ebay I can tell there is another factor that buyers consider and that is the fact that the fixed price tend to be perfectly reasonable prices for the item and that auction pricing can too often drive the price up to an unreasonable price. In the instance of Ebay as opposed to the art world, the items being sold are for the most part items that have fixed pricing other places in the market. As far as art auctions, they tend to be items that’s value is more subjective.
ReplyDeleteThe conjecture is that the higher hassle costs Entertainment
ReplyDeleteSo, I am a big fan of eBay and both the auction and fixed price formats, it just depends what the item is that I am looking for and what my time frame is. When it comes to buying textbooks for MBA classes (a way better value than the bookstore!) I prefer the fixed price format. I already know the value of the item because I have priced it at the school bookstore, so I search for the same edition on eBay and buy it now in order to get the item shipped to me before the semester starts. Oftentimes it is used but in great shape. As a consumer I feel validated because I did not overpay, and I know what I am getting.
ReplyDeleteWhen it comes to my hobbies, it's a different story. There I am not under a time crunch and I am willing to wait a little longer to get a deal, thus the auction format works best. I can't tell you how many time I have patiently waited on an auction for a Lionel train to end. Many times I have been outbid by a Sniper at the last minute, but that's okay. I set my bid at the value I feel it's worth. If someone wants to spend more, than they value the item higher than I do. Even if it is only by a dollar, it exceeds my valuation. Many times I have grabbed up a train engine or car for much less than what the local model train store is selling it for, so in my mind, I win.
So, to me, the auction format is all about timing and value. If I have the time, I will go with the auction format. If I need an item quick and I have done my homework, then it's off to a fixed price for me. When it comes to selling, it's the same idea. If I am selling a textbook, I will list it at a fixed price. I feel that a buyer is more likely to grab up my book much quicker on a fixed price listing. With the trains, it's all auction format for my sales. I feel that in the end, my train sales will yield greater returns if I list them auction style.
Interesting to read all this, I believe we must make sure we understand all these things well in order to gain in any field. I do Forex trading and for me it’s important that I keep myself updated with everything. I gain endless benefits and that’s all to do with OctaFX broker which is a superb company with having massive rebate program that gives me 50% back on all trading orders which includes the losing trades too, so that’s why it’s all very cool for me and helps succeed.
ReplyDeleteFixed pricing is more appropriate for items that are sold on eBay since auctions on eBay can drive the price of an item up to a lot more than what it is worth. The buyer may then decide not to buy and the seller has to start all over again. As noted by (Froeb, 2016), auctions can identify the high-value bidder, and sets a price for the item; thereby avoiding costly bargaining. This is a scenario more appropriate for expensive art pieces, much like the art mentioned in the Christie’s blog where a Turkish financier was given a house guarantee of $40 million.
ReplyDeleteThe pros and cons are more in favor of fixed pricing than auctions on eBay. With auctions, consumers have to deal with higher hassle costs such as waiting, including sniping and this has helped to contribute to driving buyers on eBay to seek fixed price offers. The variability of auctions makes it more complicated as well as time and research intensive (Hsiao, 2016). With fixed pricing, consumers have the option to buy the item directly without bidding and will always know their revenue and profit margins on any item that sells. Most importantly, eBay customers avoid collusion and conspiracy with fixed pricing.
Froeb, L. M., McCann, B. T., Shor, M., & Ward, M. R. (2016). Managerial Economics. A Problem Solving Approach. 4th Ed. Cengage Learning.
Hsiao, Aron (2016). Auction vs. Fixed-Price: How to Choose an eBay Listing Format. Retrieved from https://www.thebalance.com/choose-ebay-listing-format-1140527
The move to a fixed pricing over auction is partly based on information symmetry. People are more knowledgeable than ever in the products they are interested in. The uncertainty of the seller’s reputation and reliability along with excessive tacked on seemingly arbitrary shipping and handling charges have made a fixed price system a better choice for a lot of Ebay shoppers. Auction sites are better suited to items that have less definable value. Old sentimental objects, art, limited edition objects that are hard to come by and harder to replicate.
ReplyDeleteEbay auction system ironically has become more of a Vickrey auction because of bid sniping. Bid snipping is the practice of waiting to the last possible moment to bid an increment above the last bid to increase your chances of winning the auction. Since Ebay auctions, regardless if they are open a couple of days or a week they have a final set time snip bidding is strategically the best way to avoid aggressively bidding beyond a buyers private estimated value. In effect snip bidding is taking is the most optimistic price where other buyers consider the value of the item to be less than said estimate. Where Ebay differentiates from a Vickrey auction is the ability to measure the bidding as an observable analytic. Vickrey auctions are sealed bids and one round of it. Ebay is a hybrid of both the common value and the Vickrey auctions in this regard.
Have followed your blog for years. I appreciate the sober, rational approach to economics and markets that is difficult to find anywhere.Used Mazda 2 Cars For Sale
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