Wednesday, October 19, 2011

An eBay Primer: Using the Free Market to Your Advantage (as a Buyer)

I opened my eBay account at the same time that I was learning about supply and demand curves in AP Economics. More than a decade has passed since then, but eBay remains one of the best examples I know of the raw forces of a free market system at work. The bottom line in a free market is this: the price at which an item will sell is the price at which a buyer is willing to purchase it. On eBay, however, in order for this principle to apply, there must be at least two buyers bidding on the item in question. Without the competition between at least two buyers, a given item will sell for its asking price--presuming it sells at all. Further complicating matters is the quantity of the item available for purchase. As in the classic supply-demand curve, where demand remains constant, the greater the supply, the lower the price of the good in question, because the greater the supply, the more sellers will compete against one another to attract a buyer for their items. Also, buyers may be willing to let a few auctions go in order to secure the item at a lower price if they can be relatively sure that more auctions featuring that item will be coming down the pipeline. Where the item in question is rare enough that an auction may represent the only opportunity for most buyers to acquire it, all bets are off. If the item is likely to have a dedicated following, a heated bidding will almost inevitably ensue, with the winning bidder paying top dollar for the honor of bringing home such a rare prize. Just as it takes two to tango, it takes at least two to start a bidding war. Nevertheless, I've done my part on more than one occasion, with the most egregious examples stemming from rare - and usually Japan-only - Rockman/Mega Man-related items. I paid roughly 150% MSRP on a Rockman DASH artbook during my first year on eBay, and a year ago, fought (and won) a ferocious bidding war on a garage kit Rockman model that predated (and, in terms of sculpting if not articulation, bested) the mass production model kit from Kotobukiya. I believe I paid roughly double the original price you'd have paid if you were lucky enough to attend the garage model convention at which the kit was sold, but seeing as my max bid was nearly double that amount (because it seemed to be - and to my knowledge has been - the only kit ever sold on eBay), I still enjoyed a considerable consumer surplus. So what can you learn from free market principles, bidding wars, and my Rockman fanaticism?

Know the Market, Play the Market

Whenever you conduct a search for an item, before you even place your first bid on an auction, you should refine the search parameters to show completed items only.  The results you obtain from this refinement will reveal the state of the market for that particular item.

If there have been several completed auctions in addition to several live ones, then the supply of the item in question seems pretty healthy.  If the completed items reveal that one of the sellers of the live auctions has listed the same item repeatedly in the past, then the likelihood that more of that item will be available through that seller also increases.

Determine Your Max Bid Before You Make Your Opening Bid

If a number of the completed items sold for a relatively consistent high bid, then congratulations: You've discovered the current market price for the item, which should serve as a price ceiling for your own maximum bids if you don't intend to overpay.  Often times, though, you'll find a range of high bids that vary according to random factors like the timing of the auction, the number of people who bid on the auction, and the disposition of the auction's high bidders.

If the supply seems a bit tentative, then depending on how badly you want the item, you may need to be prepared to enter a max bid a bit higher than the market price.  And if the item is virtually one-of-a-kind as far as eBay goes, and you absolutely must have it, then be prepared to enter into a bidding war and end up paying top dollar (read: potentially up to as much as you can afford) for the honor of claiming the prize as your own.

Establishing a max bid amount beforehand forces you to assess how badly you want the item in question, as well as how much money you want - or at least can afford - to sink into it in order to make it your own.  It removes the fevered adrenaline rush of raising your bid in the last few seconds of an auction - otherwise known as sniping - and the likelihood that heightened emotions get the better of you and you end up paying so much for an item that you ultimately regret having won it.  There's nothing intrinsically wrong with sniping - in fact, that'll be the topic of a future Primer post - so long as you establish your well-considered bid ceiling beforehand, and stick to it, regardless of what your adrenaline-amped sensibilities might try to convince you to do otherwise.

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