- Setting the reserve price is the angst of every seller
- The laws of supply and demand come into play
- Adding genuine bidders has more impact than increasing the reserve price
What the science says
What a practitioner says
“Sellers are often concerned that the auctioneer wants a low reserve price just to get the property to sell,” explains Penrose.“This can cause tension and a combative attitude which isn’t helpful to producing an optimal result. I prefer to take this tension out of the equation by setting the reserve price to whatever the seller prefers.In our meeting 48 hours prior to the auction, I explain to them that the reserve price is their safety net. It’s a figure whereby I can sell the property at or above, but can’t sell one cent below.And, importantly, they have the right to amend their written reserve price at any time during the auction. This simple explanation diffuses the tension immediately as they know that the control is in their hands and it builds trust between us. This trust is critical once we get to the pointy end.”Grant Penrose from RE/MAX Profile
An optimal reserve price?
- Bulow & Klemperer, (1996) “Auctions Versus Negotiations”, The American Economic Review, Vol. 86, No. 1., pp. 180-194.
- Ostrovsky, M. & Schwarz, M. (2016) “Reserve Prices in Internet Advertising Auctions: A Field Experiment”, Stanford