Take the Quiz >>
Online auction site eBay (EBAY) has spawned countless individual and small business success stories—the company estimates that more than 430,000 people in the U.S. make most or all of their income through its auctions. A September article by Snappy Auctions' president and CEO Debbie Gordon published on the Kauffman Foundation's eVenturing Web site suggests entrepreneurs try eBay as a low-risk way to test the market for their product.
The wealth of data that the auction giant makes available has also been a boon to researchers. Professors of marketing, economics, management, and psychology have published dozens of papers to try to explain how and why eBay users buy and sell online. We've combed through the data to boil it down to what eBay sellers really want to know: How to get the best price. Here's what we found.
1. Set the starting price low (except for items you expect little interest in). Low starting prices stimulate auction traffic and get early bidders psychologically invested in the auction, leading to more completed sales and higher final prices. Professor Gillian Ku from London Business School and professors Adam Galinsky and J. Keith Murnighan from Northwestern found that Nikon cameras with starting prices of $0.01 resulted in significantly higher final prices than the average price for completed camera auctions.
An auction for a kitchen sink with a starting price of $225 ended without a single bidder. When re-auctioned with a starting price of $75, the sink sold for $275. The exception to the start-low rule: If you're selling an idiosyncratic item you don't think a lot of people will bid on, set a price closer to the item's actual value.
2. Use reserve prices with caution, especially for low-priced items. When using a low minimum bid, nervous sellers sometimes set secret reserve prices to make sure their item doesn't sell for less than the item's true value. Using reserves is a risky strategy for sellers, say professors at Stanford and the University of Arizona, because it reduces the probability that the auction will end in a sale.
In an experiment using Pokémon trading cards, they found that secret-reserve auctions on average resulted in fewer serious bidders per auction and lower final sale prices. However, other research suggests that for auctions of higher-priced goods (over $25), secret reserves might actually push revenues higher when the auctions end in a successful sale.
3. Use photos in your listings. Listings with photos receive much more traffic than listings without photos. Generally speaking, more traffic to your listing—especially on the first day of an auction—results in more active bidders, and the more bidders competing for an item, the higher the sale price. In one study at Stanford, researchers found that an extra bidder results in an 11.4% increase in auction revenue among all auctions, and a 5.5% increase for auctions in which there are least two bidders.
4. Don't flood the market. If you're selling multiples of an item, space them out, rather then selling them all at once, says Ku—that's simple supply and demand at work.
5. Spell-check. Misspellings decrease the amount of traffic an auction receives. Ku, Galinsky, and Murnighan found that Michael Jordan shirts listed "Micheal" went unsold almost twice as often as those that were spelled correctly. When sold, the misspelled brand names resulted in lower final sale prices.
6. Hype it up. Ku and Murnighan suggest that inserting blatant puffery like "This shirt is hot!! A must-have for the summer!!
" into low-starting-price auctions could stimulate interest better than more straightforward listings, and possibly even raise final sale prices. Researchers at Stanford found that auctions which mention the high retail price in an item description sell for 7% more on average.
7. Hold longer auctions. Researchers from the University of Arizona and the University of Michigan found that longer auctions tend to fetch higher prices. While three-day and five-day auctions yield approximately the same prices, seven-day auctions are about 24% higher, and 10-day auctions 42% higher on average.
8. Don't end auctions during "eBay happy hour." Though it might seem counterintuitive, a University of Pennsylvania researcher found that auctions ending during peak hours on eBay are actually 9.6% less likely to result in a sale. The reason? More competition. About 35% of auctions end between 5 p.m. and 8:59 p.m., when 25% of bids are placed.
9. Charge for shipping—but not too much. Bidders don't pay much attention to shipping costs when placing bids, say professors at UC Berkeley and Hong Kong University of Science and Technology. CDs listed with a starting price of one cent with $3.99 shipping averaged 21% higher final sale prices than CDs set with an opening price of $4 and no shipping charge. But when the professors listed CDs with a $2 starting price and a $6 shipping cost, five of the 20 CDs went unsold.
10. Avoid negative feedback. A Bentley College researcher found that sellers who have even a few positive reports are more likely than sellers who have no history to receive bids and to have their auctions result in a sale. Positively rated sellers also receive higher bids. One study by researchers at UC Santa Cruz and Ryerson University found that highly rated sellers are more likely to provide secure payment options, such as PayPal, as well as detailed product information.
By being aware of the strategies that eBay sellers use, eBay buyers can benefit from academic research as well. For example, be wary of high-traffic auctions: Prices can get artificially inflated. Instead, try searching for items using common misspellings and check out products listed without pictures. These auctions generally receive fewer bids, and therefore usually end up with cheaper sale prices.
And if you're worried a bargain you see on eBay might just be too good to be true, (see BusinessWeek.com, 6/29/04, "10 Ways to Avoid Buying Fakes Online"), then take our quiz "Can You Spot the Fake Online?"