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Reserve Price

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Definition:

A reserve price is an optional feature used by sellers to allow them to void the results of an auction if bidding does not reach their desired price.

As is the case in real-world auctions, some sellers hesitate to place items up for bid unless they can ensure that they won't be forced to sell an item undervalued by the bidding process. Use of the reserve feature incurrs a seller fee, but in return the seller is freed from the obligation of selling to the highest bidder if the bidding never reaches the listing's reserve price.

Bids on an auction showing a reserve price become binding if and only if the reserve is eventually met (i.e. the price of the auction exceeds the seller's reserve). Once the reserve is exceeded, however, all bids become binding and the winning bidder is indeed obligated to make payment for his or her purchase at auction end.

Identifying Reserve Price Auctions

Reserve prices are secret—no one but the seller knows what the reserve price for a given auction is. Buyers can, however, identify reserve price auctions by the presence of either of the following two phrases near the top of the item listing:

  • "Reserve not met" indicates that a reserve price has been set for the listing and that bidding has not yet exceeded this price.
  • "Reserve met" indicates that a reserve price has been set for the listing and that bidding has exceeded the reserve.

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