eBay based pricing models

Buying some kayaks was phase one in the plan to spend more time outdoors with my family. Phase two was buying some kayak carriers to mount on the roof racks, after discovering that two kayaks are just too wide for the average roof racks. So after looking at some outrageous prices for bent pieces of metal covered in foam in a couple of stores, I went to eBay to have a look at what people were selling.

I found what I was looking for, set a maximum bid of $103 for a set and waited to win. But it wasn’t to be, as the kayak carriers went for $120 with a couple of people bidding past my maximum. But after losing, things got interesting, which is the point of this article.

After missing out, I got an email from eBay stating, “You have a second chance offer”. Apparently “because the high bidder was either unable to complete the transaction or the seller has a duplicate item for sale.” Which of course sounds perfectly reasonable, but after watching eBay-based businesses for awhile, I don’t think that’s what was really happening. My hypothesis:

The seller actually had quite a number of kayak carriers to sell, but rather than run a series of auctions, they ran just one, and used it to draw out the identity of a number of potential customers, with the maximum price each of them was prepared to pay. They then contacted every “runner-up” who had a maximum bid over the sellers’ minimum acceptable price, and offered them the goods at that price, ie. their maximum bid. A new twist on a dynamic pricing model, that leaves no money on the table!

Apparently this activity “is in compliance with eBay policy”, despite the fact that if my hypothesis is true, it’s highly likely to enrage the winning bidder as he will feel cheated. However, since this transaction is a one-off, of minor value and they are not chasing customer loyalty, I think that running the risk of making the winning bidder angry probably isn’t that big a deal, as customers get angry all the time, eg. when a sale starts the day after they purchase. But then again, deliberately behaving in an ethically dodgy manner is never a good idea as it’s all too easy to become a habit, up until the moment you find you are actually Arthur Daley. And representing an item as a one-off, or scarce resource, when you know that’s not the case is certainly dodgy.

eBay does however continue to fascinate me, as I become more and more aware of how it is being used to gather market data such as price sensitivity, rather than just a platform for flogging goods. However, that fascination causes me to sit in front of the computer, rather than get outside with the kids, which is why I bought the kayaks in the first place.

Brendan Lewis is a serial technology entrepreneur having founded: Ideas Lighting, Carradale Media, Edion, Verve IT, The Churchill Club and Flinders Pacific. He has set up businesses for others in Romania, Indonesia, Hong Kong and Vietnam and is the sole Australian representative of the City of London for Foreign Direct Investment. Qualified in IT and Accounting, he has also spent time running an Advertising agency and as a Cavalry Officer with the Australian Army Reserve.