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Prices jump when auction minimums drop

AP Technology Writer

Most auction sites let sellers set a “reserve” price under which they are not obligated to sell the item. Sellers are assured they won’t have to unload their item at a loss; sites make more on their commissions with such minimums.

So took a big risk when it dropped the reserve-price option and started all bids at $1. But the move yielded surprising results: the average price increased 30 percent and the average number of bidders per item surged 50 percent.

“The board of directors was biting their fingernails,” said P.J. Bellomo, the company’s chief operating officer. “But more people keep showing up.”

The site, which sells items seized or found by police departments nationwide, quietly began informing sellers about the change earlier this year. The change covers nearly all items, including diamond rings, computers, coins and Rolex watches.

The company also has a no-reserve format for automobiles, but police departments may set the opening price higher than $1. Bellomo said the company may soon require $1 starts on cars, too.

Amar Cheema, a marketing professor at Washington University in St. Louis, said bidders probably think they’re getting great deals - even though they’re paying 30 percent more than before.

“When an individual is looking at an auction and they know there’s a reserve price, it discourages entry,” said Cheema, who studies consumer behavior and auctions. “Because there is no reserve, more people are likely to enter, and when you have more people entering the bids go up.”

Source: Prices jump when auction minimums drop - 05/16/2007 -

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