Evaluating the Value of an Auction (Finance Style

[georgedward78]

Before I subscribed to a basic store level (yesterday) I developed an auction strategy that I'm sure many of you more experienced sellers can critique. All of this auctioning, 58 simultaneous at the moment, has me thinking... can't auctions be evaluated similar to the way derivatives with underlying assets can be? 

There is always an element of randomness to any auction. That makes sense. My finance professor in college always said: "as long as there is time, there is hope," when talking about the value of a derivative. As time runs out, hope runs out. 

Supposed you purchase a derivative that allows you to purchase a unit of stock at a given time for a given price. The difference between the market price of that stock and the price on the derivtive contract is your gain or loss. Models such as the Black-Scholes model (a model that has since been frowned upon) have been somewhat succesful at evaluating the profitability of purchasing or selling derivatives. 

An auction has the potential to pit two egos against eachother and rise in price far above going rates. Seemingly, putting a "buy it now" price on an auction would reduce upside potential.... but we are not dealing with automotons, once again, we are dealing with humans. Adding a "buy in now" option gives an ego driven person the ability to win the auction at any point he chooses. A sure sale or increasing the probability of a profitable sale increases the "value" of the auction (before the final outcome is known).

Suggested strategy one: Always have a competitive "buy it now" price for all auctions. 

The second strategy concerning auctions is starting price. I think this very much depends on sales rank, volume, etc. When browsing ebay and even google, I've notice getting suckered in to auction listings because the price of an item was so low. I also remember purchasing a few books back in the day when seeing that the item was being auctioned and not wanting to wait until the end. I picked the item right in front of me. 

Suggested strategy number 2: Price auctions low to get more bidders and "buzz" and go for the "buy it now." 

Anyways, those are my thoughts with limited experience. Please!!! Let me know your thoughts as well. 

[slippinjimmy]

I understand what derivatives and underlying assets are.....

But

I haven't got a clue how you are applying this to eBay Auctions and I read your post twice.

[ads*and*ends]

I certainly revere the Good Will Hunting approach to the inner intricacies of the mysterious and elusive formula for an auspicious auction denouement, though I've long felt a tenacious druthers towards one elementary verisimilitude...that one's starting price, must begin at one's lowest point of sufficient result. Most auctions end in peace, not war.

Having said, ...good luck to you. Congrats on the store. No matter anyone's feedback, the only ones who fail are the ones who stop learning.

[ads*and*ends]

ps - don't do auctions. Especially right before Christmas. 80% of eBay listings are Buy-It-Now.

[slippinjimmy]

I'd bet that 80% number is no longer accurate, it was first quoted at least 2 years ago and if you take out the sellers who use auctions simply to have two listings (legal duplicates) of the same thing it's probably less than 10% these days.

Auctions are still great for the right type of items

[ads*and*ends]

Technically, I am just repeating what I've read here about 80%. Agree right type of items, though for what I sell, it's always the items I expect the least from, or expect nothing at all. The 99 cent bin.

[membersinceaug2001]

I see an awful lot of auctions that end at too low of a price.  I'm sure the sellers could have sold higher at fixed price.

[sweetpieces4you]

I disagree with both of your strategies !! Putting a ( buy it now price ) on a auction can have a negative on the auction itself !! Unless you know what others are thinking ?? And since I do not believe you are a fortune teller/ nor do I believe in such things ! All it takes in a auction is ( 2 ) people not ( 20 ) that want that item as much as the other. And boom there goes the auction bidding that could surpass your buy it now price !! I have seen this far to many times and I personally would never add a ( BUY IT NOW ) price to a auction !! 

 I personally have never started any auction at the lowest price !! Though I have seen it done thousands of times. Yes it will bring in more bidders ( BUT ) those bidders are usually not the people that end up bidding at the end and actually purchasing the item !!

I don't need to see ( 30 , 40 , 50+ bids ) on my items !! Means nothing. All I want is serious bidders and by starting a bid at a reasonable amount will do that !! (REGARDLESS ) If I know a items REAL value or not. And the real value is determined by the last and most important bid. Eliminating the ( 1¢ bid or .99¢ bid ) is the way I GO ABOUT IT but not everyone. Your auctions. Your strategy. But I personally don't see the point in it !!

So a BUY IT NOW on a auction ?? NO WAY !!

And getting more bidders by listing at the lowest possible bid ?? NO POINT !! 

Just the way I GO ABOUT DOING BUSINESS !! It may not be for everyone but it most definitely works for me . 

[nobody*s_perfect]

---

@georgedward78 wrote:

---

 .... Adding a "buy in now" option gives an ego driven person the ability to win the auction at any point he chooses. A sure sale or increasing the probability of a profitable sale increases the "value" of the auction (before the final outcome is known).

Suggested strategy one: Always have a competitive "buy it now" price for all auctions. .... 

The BIN can only be used before the bidding begins, except in 4 categories where it remains available until the bidding reaches 50% of the BIN price.

So really the only individual who has that option is the very first bidder/buyer.  If he chooses to bid (taking  a chance on purchasing the item for less than the BIN price) then later bidders won't even know that the BIN option ever was there.  Bidding often goes well beyond the original BIN value.

Another reason to add a BIN is to incite the bidding to begin -- a potential buyer who is willing to pay at least your opening bid price but who is not willing to pay the full BIN price (or who is willing to gamble that nobody else will bid it up that high) will place an early bid to "kill the BIN" thus ensuring that you get at least that one bid, and possibly (according to eBay's theory at least) spurring other bidding due to the apparent increased appeal of the item (other potential buyers will see that another member values the item too).

[moo*cow*corner]

Getting a high ending price is only half the battle. For me, getting the winner to actually pay was the most common issue. I don't run many auctions anymore for that very reason.

In certain categories, auctions are alive and well. In others, not so much. For me, I try to ascertain the liklihood of the winner actually completing the transaction as part of my descision to even run an auction in the first place.

[pargran3]

Maybe the OP should keep in mind that running auctions in categories that have an extra fee when paying for a store is not a good strategy by any stretch of the imagination. Having the store serves no purpose whatsoever especially if store categories have not been set up and everything is in the other category.

Radine

[nobody*s_perfect]

If the auction sells, then the insertion fee is credited. So the investment is based on an estimation of the likelihood that the item will sell.

[southern*sweet*tea]

Since you now have a store, adding a BIN to an auction is no longer free. It will cost an extra five cents per listing. Adjust your prices accordingly if you choose to add the BIN.

[nobody*s_perfect]

The fee for adding a Buy It Now option ranges from 5 to 25 cents depending on the BIN price.

http://pages.ebay.com/help/sell/storefees.html

[fern*wood]

My thoughts are that it is strange to me to write the following in your item description (that's about all the description said too). 

"I’m setting a buy it now price, so you could buy it now because otherwise it will go for near that prices."

Are you setting reserves to assure that is true or just hoping?  Used shoes could sell at your opening bid.