The Bidder’s Curse – Overbidding on eBay
A new paper entitled The Bidders Curse by Hanh Lee and Ulrike Malendier throws some interesting light on the practise of overbidding. Overbidding occurs when the final price of an auction is higher than the price for which the item is available for Buy it Now (BIN).
Here are the salient facts from the paper:
- 72% of auctions end at a price above the fixed price, although this drops to 43% if differences in shipping cost are considered
- Overbidding is positively correlated to auction length and specifying the recommended retail price (RRP)
- Only a small percentage (11%) of bidders overbid. As overbidding will probably win you the auction, they tend to win the auctions! This is the bidders curse to which the names refers.
- Oddly the effect of mentioning the RRP is more pronounced for more experienced sellers (those with higher feedback scores)
What does this means for eBay sellers?
- If you are not already doing so, consider auctions a selling strategy on eBay. Scott Wingo , the guru of eBay strategies, recommends a 40-60% BIN rate (% of BIN listings), whilst 35% of sales on eBay are BIN
- Always list the RRP in your listings if available
- Experiment with 10 day listings