Eloe2000
Straight Flush
It’s a technique to get buyer’s emotionally invested interest in a specific item by allowing them to think they can get it at a cheaper price. This works in two distinct ways:
1. A buyer is basically already willing to pay the BIN price on an item. But that item is available from multiple sellers at the same or similar BIN. However one of the sellers has a “make an offer” option. So the buyer lobs in a lower offer which gets rejected and then they think “screw it, I’m already here on this sellers item. Let’s just pull the trigger on this sellers BIN”. So in effect it’s a marketing technique to draw in a buyer to one particular seller’s commoditized item.
2. Bidding is like a game and people have a natural desire to “win” (or at least not to “lose). They also become emotionally invested in purchases. So some uncommitted buyers sometimes will continue to bid up their offer rationalizing each increase as they become increasingly more emotionally invested. Eventually they reach the BIN price and pay it sometimes driven in part by their desire to “win”. This works less with necessities and other types of impulse items, items of marginal interest, collectibles, or other items with just a high price relative to the buyer's initial expectations.
eBay is a fantastic treasure trove of transparent data with great depth and breadth. There are tons of studies and papers and classes taught on various market aspects in economics classes in b school and beyond using this data.
The classic study early on in the eBay days was on the topic of peoples willingness to bid higher at auction than they would pay at a contemporaneous BIN price. People literally pay more at auction when there is the same item currently available at a lower BIN just due to psychological desires to win and emotional investment in purchases. Also plenty of studies early on that the end auction saw price will be higher with a lower starting price because the lower starting price entices more participants which in turn helps competition to drive up the price. This doesn’t apply to totally obscure items but in general I have always listed eBay sales starting at .99.
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