The biggest concern to be considered while selling a product is to attract buyers. This can be done by using signs, newspaper advertisements, magazines, or any possible means of attracting considerable amount of attention to your concern. On eBay one of the most commonly used strategies is to advertise by starting the opening bid at ridiculously low prices. In most circumstances most products that have low starting bids actually mislead buyers that they can purchase an expensive item at a winning bid of extremely low value (e.g. $9 for a laptop). Subsequently, these buyers will repeatedly bid on the same item simultaneously and eventually paying the unreasonable maximum price for it.
With or without expertise, people normally assess a product’s value by looking at its starting price. In many active selling markets, low list prices always result in high selling prices (e.g. Perkins, 2005). From an economic perspective, choosing a low starting value provides a low-cost means for more bidders to place more bids because the barriers for entry is lowered. By attracting more bidders and more bids, a high final price is more likely to be induced. Nevertheless, an escalation of commitment being invested in the pursuit of an item makes people see it as more valuable (Aronson & Mills, 1959). It can be suggested that early bids acting as sunk costs lead early bidders to make additional bids, pushing the final price higher. Finally, when an auction is activated by upcoming bidders, they use bidding activity to estimate the item’s value – more bidding indicates high value (Dholakia & Soltysinski, 2001). The illusory perception of strong competence among bidders attracts additional traffic, which also push the final price higher.
In general, while making a judgment, people tend to use cognitive heuristics to simply their decision making. Amazingly, regardless of applicability or even expert proficiency, final behavior and judgments are often heavily affected by the initial starting value. In the case of bidding online, starting values have powerful assimilative effects on final price: low starting price attracts new bidders – upcoming new bidders increase traffic – more traffic indicates the luxury features of an item – even more bidders are attracted to the pool of negotiation. This has implication for the behaviors and outcomes in buyer-seller negotiations in trading markets.
Aronson, E., & Mills, J. (1959). The effect of severity of initiation on liking for a group. The Journal of Abnormal and Social Psychology, 59(2), 177.
Dholakia, U. M., & Soltysinski, K. (2001). Coveted or overlooked? The psychology of bidding for comparable listings in digital auctions. Marketing Letters, 12, 225–237.
Perkins, B. (2005). Silicon Valley’s out-of-control housing market. Retrieved June 29, 2005, from http://realtytimes.com/rtcpages/20000217_siliconvalley.htm