At 04:16 PM 5/27/98 -0400, Francis wrote:
>
> lee,
>
> have just been monitoring the messages from the newsgroup. but this time you
> have me confused. i have never bid on anything before so i don't know the
> mechanics of this. first of all, what is the reserve amount and who
> determines it? next, what is the function of the reserve amount?
Francis (and Winsor):
Actually, it's quite simple.
Assume you wish to auction off item X on eBay, and that you wish to guarantee
that you either (a) get a minimum amount of money for the item or (b) if you
fail to get the minimum amount of money from various bids, you will not be
required to sell the item at the last "inadequate" bid you received before the
auction's over.
Okay, so you place item "X" on auction, with a reserve bid of $200.00 for the
item. The key here is that the reserve price is known ONLY TO YOU (and the
eBay bidding algorithms, of course). Thus, you enter the item into auction
with a starting bid of (say) $25.00. You also specify that you'll accept bid
increments equal to or greater than (say) $10.00 ONLY; incremental bids of less
than ten dollars are not acceptable.
First bidder comes along. She/he notices (and knows) only three things about
the auction:
i) the bidding starts at $25.00 (and no-one's bid yet);
ii) minimum bid increment from any previous bid is $10.00; and
iii) there is a (to her/him) UNKNOWN reserve price.
She/he bids the minimum, $25.00.
Along comes bidder number two. He/she says "Ha! I'm not gonna enter any wimpy
little bid! I'm bidding my entire savings account!" #2 enters a bid of
$175.00. Result? The bid only rises to $35.00 (remember the minimum increment
was $10.00), and the second bidder is informed that (a) he/she is the high
bidder for item "X", and (b) he/she still hsn't met the reserve price.
Now go back. This time, let's say bidder number two actually entered a bid of
$225.00 as the maximum he/she wishes to bid. Result? The bid rises to $200.00
(the up-'til-now unknown reserve price), the second bidder is told that he/she
has met the reserve and is presently the high bidder, and the bidding
continues.
Now along comes bidder number three. Number three notes that the incremental
bid is a minimum of $10.00, and, not wishing to outdistance him/herself, bids
$210.00. Result? The bid amount rises to $220.00 (remember that bidder number
two, in our alternate scenario, entered a bid ceiling of $225.00, counting on
the bidding algorithms of eBay to automatically bid on his/her behalf up to the
maximum bid of $225.00), bidder number three is told that she/he has been
outbid by another bidder, and the bidding continues.
And so it goes. It's actually a fairly slick little system. If you, as the
seller, never receive a bid which meets your reserve, it's up to you whether
you sell the item at the "inadequate" price or not. If a bid does meet your
reserve, the rules state that you *must* sell the item.
Garth
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