It can be extremely difficult to determine the exact value of items in an online auction. Known as the Winner’s Curse, the fear of overspending on an item often keeps people from participating at all. Unfortunately, these potential bidders miss out on some pretty incredible deals.
Avoiding the Winner’s Curse isn’t as difficult as it seems. Although it’s not always possible to know the exact value of an item before bidding, there are some things you can do to ensure you don’t overspend.
Determine the “Common Value” Versus “Private Value” of An Item
Common value is the market value of an item. This might be the item’s MSRP or resale value. Private value is the perceived value of an item. While common value is the same for all bidders, private value varies from one bidder to the next.
For example, a collector looking for a certain piece will place a higher value on that item. This is especially true for hard to find and discontinued items. The collector may determine that the piece they want is “priceless”. Other bidders might not feel the same way. For the collector, the perceived value of the item is higher, making it more valuable to them..
When an item has a high private value, the Winner’s Curse is not a problem. Simply decide what you’re willing to pay to get what you want. This will likely be much higher than other bidders.
For common value items, consider how you would feel if you won the item for what you bid. Would you feel that you overspent? Set a specific budget for each common value item and stick to it. Don’t increase your maximum bid on any item, even if you get outbid.
What If The Item Doesn’t Meet Your Expectations?
Sometimes, despite your best efforts, you may purchase something that doesn’t meet your expectations. The item may be broken or missing parts. Make sure you shop with an online auction company that accepts returns.