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Reasons reserved auctions do not work

Friday, Aug. 12, 2011 - 2 pm | Andy Artley

I don’t believe reserved auctions work. I say this not because I work for an unreserved auction company, but due to my understanding of the psychology of good auction buyers. We must understand what a good auction buyer really is and what motivates him to bid on equipment and pay more than anyone else will.

A good auction buyer has certain needs.

  1. He wants to get a “little something for nothing.” In the event that he can’t, he at least wants a “good deal” that is fair and may be better than what the retail sector will afford him.
  2. He mistrusts the establishment of the “fixed price” market and does not like to have the underlying asset influenced by what a manufacturer or dealer thinks is fair. He wants the free market to determine the price point.
  3. He has the need for acquiring the asset right now. He is not a tire kicker. He does not want to wait for his equipment to be delivered three month from now. He does not want to see any hindrances to his transaction. He does not want to wait until a seller is ready to sell.
  4. He is an idealist with a sense of fair play who believes in absolute free trade. He also wants to make sure that he bids alongside his peers so that he doesn’t pay too much.

When we understand these needs of good auction buyers, we also begin to see why reserved auctions do not work. We also see how this practice continually reduces the “good bidding pool” the more frequently reserve auctions are attempted.

Strike one
Reserve auctions don’t appeal to the idea of getting a good deal. If an item in an auction has a reserve and may not be sold, it violates this concept.

Strike two
Reserve auctions alienate the good auction buyers who participate based on the fundamental principle of fair play and free trade. After a bidder is burned once or twice, he will proceed to other markets where his sense of ideals is upheld. But even more so, once a good auction buyer gets wind that there may be a reserve or the price may be manipulated, he usually takes himself out of the bidding pool before the auction even starts and doesn’t ever participate. This self elimination isn’t good for a seller.

Strike three
Reserve auctions are counter-intuitive and often prevent the buyer from getting the asset immediately. If there is a chance that he can’t come away from the auction with an obtained asset that is needed for his business model, he probably will not even participate. If he does bid, he will be more reserved in his bidding as he doesn’t want to get taken advantage of by a bad deal.

In conclusion, many sellers are fearful of not getting a fair market value for their assets, and thus turn to auctioneers who can put a reserve on their items or try to manipulate the market. However, they often hurt themselves even further than they planned by turning away good bidders and buyers, by attracting a lot of bad auction buyers and by creating a situation where the advertised assets don’t sell. Once these unsatisfactory prices are recorded and publicized, the items have absolutely no chance of achieving better prices in the future.

Purple Wave doesn’t list assets with reserves. We believe that the no-reserve model is better for our sellers because it’s better for our buyers.

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