Basic Economics for Selling on EBay

Basic Economics for Selling on EBay

This guide uses basic principles from economics to justify many of the claims made by other guides, and offers additional insight on how to structure shipping costs, describe listings, and use other auctions for similar products to maximize your value. For you to have extra income to support your business ventures, you might want to look into playing 올인구조대 online.

Supply and Demand: The majority of tips on how to sell on eBay can be categorized as specific applications of the most basic idea in economics, supply and demand. This is important, because once you understand the common underpinnings of these seemingly different ideas, you will develop your own rules for selling.

Ending times – Many guides rightfully tell you the best time to have your auction end is sometime in the evening on a weekday. This maximizes your audience (demand) as your auction is winding down (when the majority of bids occur). My personal preference is to have an item end at 10pm eastern time. This allows those on the west coast to get home to bid while not keeping the east-coasters up too late. If your target market is in another country, it is important to consider local times. Auctions on ebay are pre-set to end in 24 hour increments immediately following your listing, but for an additional $0.10, you can specify end times.

When to list? (uncommon items) – I bought a used Art and Lutherie acoustic guitar when there were four other auctions for the same model. I paid about $150. When I sold the guitar two years later, I had the only auction going, and the selling price was $225. Assuming the demand for guitars was similar at the two times, this shows the value of being aware of the overall supply of similar items, and taking advantage of a lack of supply when it occurs.

When to list? (common items) – Selling common items, such as video games and other electronics, leaves less room for market manipulation, because you are generally competing with many other sellers. There are, however, some general rules to follow. In my research, I looked at over 9000 auctions for gift cards to various stores, tracking them over the holiday season of 2018 to 2019. These gift cards are always to be found on eBay, and are great for research because we always know the maximum possible value placed on them by any particular person (unlike, say, a baseball card). Looking at the attached photo, you can see the trend in sales of these cards. At first, just before Christmas, the average discount is hovering around 7% ($93 for a $100 card). Just before Christmas, the average discount jumps to about 10%, and then back down, before shooting up to almost 13% in the middle of January.

The story goes something like this: before Christmas, gift cards are in high demand for two reasons. First, people are buying them to give as gifts. Second, people are buying them at a discount to use as cash equivalents to purchase gifts. Demand in these two categories drops a few days before Christmas because the likelihood of getting the cards in the mail in time for the holiday drops. Just after Christmas, demand picks up again to take advantage of after Christmas sales. Finally, as the holiday season comes to an end, people begin to sell those cards they received as gifts and would rather exchange for cash by selling on eBay. There is excess supply. This story is confirmed by the data, where the number of listed auctions in mid-January was almost twice the number in the mid-December. Seasonal variations are important for common items, especially when they are new and can be “gifted”. You want to avoid selling during times of excess supply and take advantage of times with excess demand.

Mental Accounting: This is a term used by economists to explain why people are “duped” by complex mortgage contracts and other fee structures. There is a reason banks do not put the final number in front of your nose: they are counting on you not taking the time to add up the numbers yourself. The same goes for structured fee auctions. In eBay, you are able to charge separate shipping and insurance fees. You should take advantage of the conclusions from economic studies showing that average revenue goes up with reasonable shipping and insurance fees. I even found people paying a total price for $100 Best Buy gift cards of $102 or $103 after shipping, completely irrational considering Best Buy will ship you one for free for $100 (but still not profitable from a seller perspective due to listing and sale fees imposed by ebay). In general, you can charge a shipping fee to increase revenue, and you will lose revenue by offering free shipping. An added bonus is that eBay charges fees based on the final value of the auction, net of shipping. If you do not charge a separate shipping fee to your bidders, the seller fee will be applied to the entire purchase price. One important note: these same studies show that with unreasonable fees (say $25 for a computer power cord), your total revenue can actually go down. It is hypothesized this happens because people view this as a violation of social norms.

Assymetric Information: This idea won Joseph Stiglitz the Nobel Prize in Economics. He showed why used cars sell for so much less than comparable new cars: it is because buyers will never fully be sure of the quality of a car with 25 miles on it… why would someone return such a thing? Before his work, people wrongly assumed that buyers just wanted a “brand new” car. This initial research jump-started a huge line of work in asymmetric information, in which economic agents are assumed to have different levels or quality of information. The point is, the more information you provide your buyer with, the higher your final price will be, as they will be assured of the quality of your item. This information can be in the form of an item description (info on the item), feedback rating (info about you as a seller), or a “personal touch”, such as adding an email address with your name in it to the item description as a direct line of contact.

Winner’s Curse: Technically, my application is not the same as those in texts, but the basic premise is the same. I have found that, when two gift card auctions are ending one after another, relatively close together and rather far apart from other similar auctions (within 30 minutes of each other and more than 3 hours from another similar auction), the second card sells for more (statistically significant). I hypothesize this is because the pool of bidders is approximately the same size for the second as for the first, and the opportunity cost of waiting for another auction (3 hours later) makes bidders more likely to up their bid for the second so that they need not come back online. This is irrational from a classical economic point of view, but makes sense when bidders are trying to “get a deal” on the first auction. The point is, you are able to take advantage of this when you are selling similar, and oft-listed items. You can put in a 3 day auction, categorized and tagged the same as another 7 day auction and catch it as it passes the 3-day-remaining point. This may not increase revenue much but it might be worth a try, especially with high value, uncommon items.

This guide is based on my own knowledge gained from selling on eBay and researching auctions as part of my pursuit of a PhD in economics, and is focused on the application of simple economic ideas to broad selling strategies. Many smaller details have been left out, many of which you can find in other guides. Remember… economics is all about incentives, if you can identify incentives at work in the ebay marketplace, you may be able to exploit them and increase your revenues.

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