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I've encountered auctions online where the seller has set their reserve price hidden. What are the benefits to the seller that would cause them to do so?

As a buyer, if I see an item I like, I may put in a bid. If it has a hidden reserve and I did not meet it, the systems tells me right away. I can then either move on, or place a higher bid.
And even if I'm not bidding, I'm told the reserve for the item has not yet been met.

I agree that not letting your minimum price be known, is a good tactic during negotiations. But here I'm bidding. There's no opportunity to negotiate with the seller. If there's anyone I'm negotiating with, it's the other bidders.

If the reserve price is known, I may either put in a bid, or decide that the reserve is too high for me and move on without bidding. If the reserve is right at the edge of my budget, I may be tempted to go over my budget, just to meet the reserve.
If the reserve is hidden, I can play the guessing game, by bidding the minimal increment, until I either meet the reserve or reach the extent of my budget. I'm less tempted to go over my budget, since I don't know if I'm off by 5 or by 500.

So I see no real benefit to hiding the reserve price. Yet I see it all the time. What am I missing?

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    Do all auction sites tell you immediately if your bid is below the reserve? I would imagine the idea of a hidden reserve is to allow bidding to start low but progress, rather than "discouraging" bidding by showing a high reserve to start. Only at the end of the auction is it determined if the final bid met the reserve price or not. – chepner Feb 5 at 22:13
  • @chepner I've edited my question to address that. – SQB Feb 6 at 9:12
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    @SQB Note, this isn't just limited to online auctions. From limited personal experience, and watching UK TV shows like Flog It! or Bargain Hunt featuring in-person auctions, it's very rare to reveal what the reserve is. If bids "dry up" under the reserve, they'll usually just say "That didn't sell" (without revealing the reserve). Very occasionally, if for example bidding is at £95 with the reserve at £100, the auctioneer might say something to indicate that one more bid might secure the item, but not always, and almost never explicitly. – TripeHound Feb 6 at 9:54
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I found this puzzling also at first. But after reviewing many past successful and unsuccessful ebay auctions, I came to this conclusion: Keeping the reserve price a secret is all about the psychology of people.

Many people are hesitant to be the first bidder. But, if they can bid very low, they are more likely to bid. Some are afraid that they will be a sucker (paid too much). A second person sees that someone else is interested and puts in another low bid. Then a third person, etc. If the reserve is reasonable, it will be reached reasonably quickly.

When people see a lot of other people bidding, they get caught up in the bidding frenzy. When a reserve is known, often nobody will put in the first bid. This happens even when the reserve is lower than the price at which similar items usually sell.

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    This is basically the answer I was going to post; I didn't because it doesn't apply in the situation the OP seems to refer to, where (if I read it correctly) you are immediately informed if your bid doesn't meet the reserve. I guess in general, though, different bidders will have different starting bids in mind, and some of them would meet (or even exceed) the reserve, getting the bidding started. (But +1 because I think definitely think this is the answer when a too-low bid isn't immediately revealed as such.) – chepner Feb 6 at 13:44
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"Do not let the other side know how much it will take for him to get the goods out of your hands"

If we were to write "The Manual of a Good Negotiator", the previous phrase could easily be at the title of one of the top three chapters in that book.

These are some other rules if you want to turn yourself into a good negotiator:

  1. Play fair to you and the other party
  2. Never let the other know how much you paid for the goods you are offering
  3. Talk about benefits, not so much about price
  4. Never say that you need to sell
  5. Let the other person name a price first. If you must name a price, name one far higher than the one you are willing to negotiate at
  6. Reduce the price gradually, not at once and always pushing the other person to offer more. Talking about the benefits provided by the goods being sold gets you closer to a deal than anything else
  7. Let the other party increase the price until he arrives at your desired price. Good negotiators are the ones who say "Deal", not the ones who offer to pay more or to sell cheaper.
  8. If you are buying, make sure that you run every meaningful inspection related to the goods or properties you intend to buy, and use the red flags on those inspections to reduce the price to a point lower than "Price minus restoration costs", this is because your restoration endeavor deserves compensation
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    Numbers 5-7 are not how auctions work, and number 8 is impossible with online auctions. – RonJohn Feb 6 at 1:25
  • @RonJohn to be fair, some online auctions actually allow for inspection on site — if you're willing to travel. – SQB Feb 6 at 6:43
  • I've edited my question to address your answer. Note that it is an auction; there is no opportunity for me to negotiate with the seller. Like @RonJohn notes, points 5-7 do not apply, while points 2-4 rarely apply. Point 8 only applies half: inspection is sometimes possible, but you can't use it negotiate the price down — you can only use it to decide if you think the item is worth it. – SQB Feb 6 at 9:15
  • I am sorry, I didn't notice that you were asking about an auction environment. Please forgive me. Still, I hope my answer could help somebody in need of some negotiation skills. It had served me a lot. We just need to play fair with the other party because once you learn these skills you could easily overpower the other person and that in my oppinion is not correct. – Ivan G Feb 10 at 17:54

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