Reserve Price
Candlefocus EditorIn most auctions, the exact reserve price is not revealed until the end of the auction. This helps ensure that bidders can't work together to ensure that a bid fails to meet the reserve price. Additionally, this prevents bidders from having to guess the exact reserve price, so that they don't bid too high and risk ending up with a bid that is too high to be accepted by the seller.
When auctioneers are selling an item, they must have an estimation of what a fair reserve price is. This could be based off of the estimated cost of an item, or the item's past sales history. If the reserve price or estimated fair market value of an item is not reached, the auctioneer may opt to keep the item, hold a second sale, lower the reserve price for the item, or end the auction altogether.
When done right, reserve prices are a powerful mechanism to protect buyers and make sure sellers don't get stuck with an item that sells for less than they were expecting. This provides a great balance of fairness and protection - as long as auctioneers make sure to set a reasonable reserve price. If they set the reserve price too high, they run the risk of having fewer potential buyers turn out to their auction, as the fear of not meeting reserve might deter some bidders.