You might think it logical that when selling an item on an ebay auction that you would put it on at a low price price to attract bidders and minimise fees and after a while the market conditions that exist would lead you to getting a fair price. It might work, but I would say most economic utility gained from such a transaction is usually with the buyer. That said they don't overly benefit as they have in theory paid a fair market price, but it is the seller who looses out the most.
Maximum Price Buyers are Willing to Pay Theory
Here is my thinking, for every item, there is a theoretical maximum that buyers will be willing to pay. Again we are assuming perfect market conditions exist, which can't be that far off as ebay is web based and finding out information about equivalent or equal products should be relatively easy.
My theory is that buyers are unwilling to distinguish the value, cost and time it takes to post an item once they have purchased it. They have a maximum value they attribute to an item they see on ebay and within that figure, they are unwilling to add extra for the costs of the sellers time to package and post the item.
The reason might relate to perception of risk inoppose to tight fistedness. Within any transaction where the buyer cannot see the goods and has no right of return should the item be unfit for purpose, there is an element of risk. How does a buyer mitigate against this, in the main by paying less for the value received.
Of the total amount the buyer is willing to pay, it can be made up of different components according to the graph in Figure 1. You may have to click on this to expand, but it should be self explanatory.
Figure 1 - Economics of Ebay
Neo-classical economic theories are great for producing graphs of possible behaviour however, real world selling produces some interesting ways of achieving a higher price on ebay than that which you might ordinarily earn.
What Should Sellers Try Do?
When advertising an item, you are limited in the time that you have for the auction/sale. That means you will have a limited number of buyers which is likely to reduce competition for your item and the number of bids, especially if you additionally decide to have collection only. That said, if you have a willing buyer, they still have a theoretical maximum they are willing to pay and the fact that there are not many bidders should not change this.
The seller might be misguided somewhat, thinking they are reducing their sales costs by advertising their item at a minimum starting price of 99p which attracts least sales fees from ebay and potentially the most bidders. If there are not enough bidders, the item is not likely to reach the total amount buyers would be willing to pay for such an item. The seller would have lost out and the buyer gaining considerably greater value from the transaction. To mitigate against this, the seller would be better off judging what they think is the largest price someone would be willing to pay for the item and advertising the item at that price; they are more likely to get it.
The seller might be misguided somewhat, thinking they are reducing their sales costs by advertising their item at a minimum starting price of 99p which attracts least sales fees from ebay and potentially the most bidders. If there are not enough bidders, the item is not likely to reach the total amount buyers would be willing to pay for such an item. The seller would have lost out and the buyer gaining considerably greater value from the transaction. To mitigate against this, the seller would be better off judging what they think is the largest price someone would be willing to pay for the item and advertising the item at that price; they are more likely to get it.
Other Tactics
Looking at Figure 1, there are other obvious ways of maximising seller utility. These may or may not be officially sanctioned by ebay but in the real World where there are thousands of daily transactions, they happen.
- Collection only - this reduces the number of buyers because of geographic restrictions except in the case for big ticket items but, can increase the utility for the seller.
- Private Offers received from buyers is against the terms of an ebay auction, but removes market transaction charges by the seller.
- Accept cash on collection and avoid paypal transaction charges.
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