| p>It is the often said that £0.99 no reserve | | | | Ku et al focused their attention on a particular eBay |
| auction are the best way to encourage bids and lead | | | | seller, Browncow, who sells Hawaiian shirts starting at |
| to higher prices. In fact Auctioning4u eBay Drop Off | | | | $9.99 and $24.99. Analysing the results of 89 auction |
| Shop lists most of its items using this pricing strategy. | | | | produced the following conclusions |
| However up to now this theory was more anecdotal | | | | * Low staring prices bring bidders into the auction early |
| than based on actual data. | | | | * Low starting prices encourage bidders to accumulate |
| A recent paper by Gillian Ku of London Business | | | | sunk costs into the auction. Low starting price winners |
| School, Starting Low but Ending High: A Reversal of | | | | have spend more time in the auction and make more |
| the Anchoring effect in Auctions has investigated the | | | | bids than low starting price losers or bidders in high |
| effect of starting price on the final value of online | | | | starting price auctions. |
| auctions and discovered that it is indeed the case that | | | | Study 4 Inferring value from Traffic and Current Prices |
| low starting prices increase ending price. Ku et al have | | | | Test subjects were asked to judge the proper value |
| discovered that three effects of lower starting prices | | | | of an mocked-up eBay item (holiday package) with |
| lead to higher ending prices: | | | | which they were presented. It was found that the |
| * Lower starting prices reduce barriers to entry, which | | | | number of bids which the items had lead to higher |
| increases bids and generates higher prices | | | | valuations. |
| * Lower starting prices entice bidders to invest time | | | | Study 5 Starting Low and Ending Low on eBay |
| and energy, increasing their commitment to the auction | | | | This study found that for auctions where there were |
| * The extra bids generated by lower starting prices | | | | less bids, the starting price did have an effect on |
| infer value in the item, encouraging more traffic | | | | ending price. By comparing the outcome of similar |
| These findings are at odds with previous research on | | | | items where there were misspellings in the titles, it was |
| negotiations which finds that ending prices were highly | | | | found that this created a barrier to auction traffic, |
| related to starting price. In the more social environment | | | | reducing final prices |
| of auctions (especially online auctions such as eBay), | | | | Lessons from research |
| this trend is reversed. Ku performed six studies to | | | | The results of this research will not come as much of |
| investigate the effect of starting price on ending price, | | | | a surprise to eBayers, but it is nevertheless interesting |
| several of which were related to eBay (these are | | | | to have analysis to back up commonly quoted |
| studies 2, 3 and 5 detailed below). | | | | conceptions. I think that the following lessons can be |
| Study 2: Starting low and ending high on eBay | | | | drawn from the paper: |
| The results of eBay online auctions were analysed to | | | | * £0.99 NR auctions work well for popular items |
| establish the relationship between staring and ending | | | | with plenty of search traffic and lead to higher prices |
| prices. For this study, two types of auctions were | | | | * Less popular items (rare) are not suitable for this kind |
| identified: | | | | of auction strategy. |
| * Independent value auctions. These are highly individual | | | | I think that the results of this research are most |
| auctions where the price is difficult to predict e.g. | | | | relevant to individual sellers, selling in low volumes with |
| collectibles | | | | using simple sales strategies. When selling in large |
| * Common value auctions. Auctions of common items | | | | volumes, the market prices will drop if too many items |
| where there is a market price. | | | | are listed and it is therefore necessary to increase |
| For the independent value auctions they choose to | | | | starting prices or use fixed price auctions to |
| analyse Tabriz Persian rugs and for the common | | | | compensate. |
| value auctions Nikon digital cameras. The following | | | | Comments on the Research |
| results were found for both types of auction | | | | There are many factors affecting the ending prices of |
| * Lowers starting price auctions were more likely to be | | | | "eBay Online Auctions" such as starting time, ending |
| successful | | | | time, seller feedback, postal rate etc. There is no |
| * Lowers starting prices auction results in more bids | | | | indication in this paper that these factors have been |
| and more unique bidders. | | | | taken into account. |
| * Lower staring prices resulted in higher ending prices | | | | The paper talks about auction traffic, referring to the |
| Study 3: Escallation of Commitment on eBay | | | | number of bids on an item. I think that another |
| This study set out to investigate the effect of | | | | interesting study would be to compare the number of |
| escalation of commitment on prices rises. Is it the case | | | | views of an auction with starting price to establish if |
| that once the bidder has placed a bid they have | | | | there is a relationship. |
| invested time and are more likely to bid again? | | | | |