Lower starting price leads to higher ending price? Apparently so.
https://insight.kellogg.northwestern.edu/article/place_your_bids
When discussing auction strategy in class, Professor Easley concluded with auction seller strategy, explaining that, all in all, neither first price nor second price auctions result in any price advantage for sellers. This led me to think about other tricks that experienced eBay sellers employ to garner higher selling prices for their products. The Kellogg School of Management at Northwestern University released an article explaining that the key to achieving a higher selling price is, surprisingly, a low starting bid price, as opposed to a high one. The conclusions that the researchers came to was that a low starting bid price led to more bids and attracted more unique, engaged, and committed bidders, ultimately resulting in a higher selling price.
When bidders view an item auction on eBay, they already have some ideal price (as discussed in class). A starting bid price has no effect on that ideal price and it has no effect on others’ ideal prices. However, a lower starting bid price means that the margin between the starting bid and the price in the buyers’ head is larger, inducing a psychological shift on bidding. This, first of all, attracts more bidders to the auction (as the lower price interests more people) and, consequently, leads to a higher volume of bids occurring until the “equilibrium” price is met and the item is sold. The research found that the higher volume of bidders and traffic made products seem more favorable as bidders thought their competitors knew something they didn’t, increasing the final selling price.
Furthermore, as the article points out, these serial bidders are more committed. With each bid, the bidder grows more and more personally invested in the auction, decreasing the likelihood that he or she would abandon the auction, even if the current price exceeded the original ideal price. This causes an upward shift in price as the buyer factors the time already committed to the auction into his or her ideal price, which in turn leads to a higher selling price, on average.