Some Slightly Better Ebay tips

A while ago Datacharmer posted on observed behaviour on eBay doesn't fit well with thoery-based predictions of consumer behaviour. He also gives a few tips based on what economists have learnt while studying trading on eBay.

EBay is not all bad news for economics: the emergence of eBay does square very well with conventional economic theory. EBay fills in a 'missing' market - where transaction costs, informational difficulties and insufficeint liquidity used to make trading in certain goods difficult or impossible. The secondary market for concert tickets is one of these. With eBay the tout's margin is greatly lowered, the risk of buying a forgery is almost eliminated and the right ticket can be much more easily sourced. So all-round ease of both buying and selling means an increase in consumer and producer surplus and everyone's happy. Yet as Datacharmer outlines the behaviour of buyers (although not sellers) is in many ways contrary to economic theory and continues to baffle.

I've been buying (quite a bit) and selling (less) on Ebay for nearly three years and my experience jars with a lot of the tips posted. Here's where they're right and wrong.:

Set low opening prices. Is it really that simple? No. As a seller you have to set a price that strikes a delicate balance. You have to make sure you get bids in the first place. Yet you don't want to set a price well below what a lone buyer would be happy to pay. It's something I've never been able to get quite right. Blanket advice like 'low opening prices' masks a huge amount of complexity.

Don't use secret reserves. Agreed. They're a waste of time and just annoy bidders. Set your reserve as your asking price, because that's just what it is.

Try to appear honest and dependable [and leave shipping costs low]. Not necessarily. The seller doesn't pay fees on shipping costs so it's wise for him to keep this value high (which should also keep prices lower for buyers). It's not hard to for buyers fo sum item price and shipping price when making a bid. In theory eBay should set the shipping costs, as Amazon does, this would leave to greater transparency and ease for buyers. But given the proliferation of absolutely everything on eBay the policing of such a rule would be impossible.

Don't bid until the last minute - early bids attract competition. Not necessarily. It's often better to bid early as if you're going to be outbid you'll find out sooner. This means you can bid earlier on the next item (which is useful on time-sensitive products like concert tickets) or you find out early that you're priced well out of the market and don't waste time. And anyway I generally have better things to be doing than making sure I'm in front of a computer screen at 11.24pm on a Thursday or whenever a bid is timed to end.

Don't fall in the 'many bids' trap. Dead right. There is absolutely no point in bidding twice*. Decide on your reservation price and bid it once. Despite what anyone says there is absolutely no strategic advantage to multiple bids. This fact is beyond many experienced eBayers. I still have no idea why.

I have no advice for sellers as I've never managed to be a good one. For buyers: decide your reservation price; bid it early (and only once); then go enjoy the sunshine!

*Annoyingly, eBay encourages multiple bidding. For obvious reasons.

by Hibernien | Friday, August 24, 2007
| | Some Slightly Better Ebay tips @bluematterblogtwitter


  1. datacharmer Says:

    Hibernien - interesting post! However, I never said that 'observed behaviour on eBay doesn't fit well with theory-based predictions of consumer behaviour', or that 'the behaviour of buyers is in many ways contrary to economic theory'. I guess that the point here is that, when it comes to auctions, the assumption of perfect information that underlines simple economic models of consumer behaviour does not serve us well: buyers extract information from the observed behaviour of sellers and other bidders. My original post referred to the empirical evidence gathered by economists and did not refer to theory, but there is a long line of research looking into auctions and markets with imperfect information in general; there are several economic models out there that can explain the behaviour of eBay buyers within a framework of perfect rationality.