What is reserve pricing?

ONLINE AUCTIONS: TO RESERVE OR NOT TO RESERVE
by Valerie Tate

What is reserve pricing? Sometimes called a "seller's bid," a reserve is a
minimum selling price, hidden from the buyers, while a lower minimum bid
starts the auction. In the extreme, sellers have been known to start an
auction at 99 cents and to set the reserve at hundreds or thousands of
dollars. In common use, a reasonable reserve is usually recognized as less
than two to five times the minimum bid.

Why should you NOT use a reserve price?

1 - Reserves drive bidders away. Many refuse to bid on any reserve action
on principle.

2 - A true auction sells to the highest bidder. period.

3 - It is deceptive.
 a. Most search returns don't show that an item has a reserve price and
thereby mislead the customer into thinking he has found a great bargain.
 b. The ad page shows the high bidder as the "winning bid" even though this
bid is not eligible to win the auction.
 c. Some people consider it to be "false advertising."

When SHOULD you use a reserve price?

1 - On an item that will get little or no activity if started at the
necessary minimum.

2 - To keep an item from selling lower than a standing offer.

3 - To protect the item from selling too low for reasons a seller cannot
control - such as the site going down near the ending time or an
attention-getting event (such as a big news story or sports event) drawing
users away from the internet at that time.

4 - To get that first bid. Without an initial bid, it will never sell.
Buyers are more likely to look at the item (and bid) a second time when
they receive the "outbid" notice.

5 - To generate multiple bids and thus cause the item to appear more "wanted."

BAD reasons to use a reserve price:

1 - Listing an item with a very high reserve in order to determine its
value, without intention of selling.

2 - In order to bypass payment of the ending fee, by contacting the high
bidder and negotiating a deal beyond the reach of the auction.

3 - To create a "shilling space" where the seller or his agents can place
bids on the item without fear of winning the auction.