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Using Reserve Prices (WTA) on eBay
Online auction platforms such as eBay provide a mechanism for sellers to enforce their Willingness to Accept (WTA) by setting a reserve price. Sellers can set a confidential minimum price for an item. If the auction ends without any bids meeting or exceeding this reserve price (the seller's WTA), the item will not be sold.
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Social Science
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Economy
CORE Econ
Economics
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.8 Supply and demand: Markets with many buyers and sellers - The Economy 2.0 Microeconomics @ CORE Econ
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Using Reserve Prices (WTA) on eBay
Setting an Auction Reserve Price
A person is selling a rare comic book through an online auction. They have privately determined that they are not willing to part with it for less than $500. However, when setting up the auction, they set the hidden minimum sale price at $400, hoping this lower floor will encourage more bidding activity. What is the primary risk of this strategy?
Seller's Strategy in an Auction
From a strategic standpoint, it is always optimal for a seller to set their auction's reserve price significantly higher than their personal minimum acceptable sale price to maximize their potential surplus.
A person is selling a vintage watch in an online auction. Match each term related to the sale with its correct description from the seller's point of view.
A seller has determined that the absolute lowest price they will sell their antique chair for is $250. This value represents their 'Willingness to Accept'. To practically enforce this minimum in an auction, the seller should set a __________ of $250.
Strategic Considerations for Setting a Reserve Price
A furniture maker is selling a unique, handmade table. They have a firm, guaranteed offer from a local shop to buy the table for $1,500. The furniture maker decides to put the table in an online auction instead, hoping to achieve a higher price. Given this situation, which of the following actions represents the most economically sound strategy for setting a minimum sale price for the auction?
A seller is preparing to auction a family heirloom. After much consideration, they decide the absolute minimum amount they would be willing to part with the item for is $800. Any price lower than this would feel like a loss to them. They are unsure of the item's potential market value, which could be higher. Which of the following statements provides the most sound economic justification for the seller's strategy in setting a reserve price for the auction?
A collector is selling a rare painting and has determined that they would be personally unwilling to accept any offer less than $1,000. Their primary goal is to maximize the final sale price in an auction, but they are also firm about not selling for less than their minimum value. Given these objectives, which of the following reserve price strategies is most sound?
Learn After
Online Auction Outcome
A seller lists a vintage camera with a starting bid of $1. Their absolute minimum selling price is $150, so they set a confidential reserve price at that amount. The auction concludes with the highest bid being $145. What is the outcome of this auction?
An online seller has a unique item they believe could attract significant interest and a high price, but they are unwilling to sell it for less than $200. They also want to encourage as many people as possible to start bidding to create momentum. Which of the following auction setups best achieves both of these goals?
In an online auction, setting a confidential minimum selling price ensures the seller will receive at least that price for their item.
Auction Strategy Rationale
Critique of Confidential Minimum Selling Prices in Online Auctions
A seller is listing a rare comic book for which they have a firm minimum selling price of $500. They are unwilling to part with the item for any less. Which of the following online auction setups fails to guarantee that the seller's minimum price will be met?
A seller, Alex, wants to sell a collectible for at least $100. A friend advises Alex to set a low starting bid of $1 to attract bidders and a confidential minimum selling price of $100. Alex is hesitant, stating, 'If the starting bid is only $1, I'm worried the auction will end at $50 and I'll be forced to sell for a loss.' What is the fundamental misunderstanding in Alex's reasoning?
Auction Strategy Analysis
A seller lists a collectible item with a very low starting bid to generate interest, while also setting a confidential minimum price they are willing to accept. The auction attracts many viewers, but the final bid is below the seller's confidential minimum, so the item does not sell. Which statement best analyzes a potential downside of this strategy that could have contributed to this outcome?