New research by economists at the University of Sydney and University of Technology Sydney shows that a packed auction room is not the way to get the highest price on lots.
The study suggests that the more bidders there are in an auction, the lower each individual bidder perceives their probability of winning, which has a demotivating effect on their desire to win the auction.
“This is a counterintuitive finding because usually auctioneers would assume that the more bidders there are in an auction, the more money they will make – the logic being that the more bidders there are, the more likely it is that there is a bidder with a high willingness to pay for the good,” said University of Sydney associate professor Agnieszka Tymula, one of the authors of the study.
“However, it turns out that there is also a downside to having more bidders – most people bid less.”
She said that the findings could be applicable to many real-life auction situations, including property auctions.
“In real-life, the auctions that attract many bidders are usually those auctions for better properties – and they will therefore generate higher bids just because the property is of higher quality,” said Tymula.
“Many real estate agents infer from this that the more people at an auction, the higher the final bid is going to be, so they try to get as many people as possible to their auction.
“However, our results suggest that this actually plays against them because seeing many competitors at an auction makes bidders submit lower bids on average.”
To send feedback, e-mail samantha.mcclary@egi.co.uk or tweet @samanthamcclary or @estatesgazette
