More bidders or the right bidders?


Mike Brandly
10 July 2018 - 12:40pm

The question again seems to be do auctioneers need more bidders (a larger bidder pool) or just the right two bidders.


At auction, the final high bid is (largely) determined by the last two bidders — the high bidder and the runner-up bidder. Given that, no other bidders are arguably really necessary. The trick is finding those last two bidders, or “the right bidders” for each property put up for auction.


I think it’s obvious that auctioneers can’t really seek out these last two bidders for each lot in their marketing — mostly because we don’t know who they are. So, if we can’t find them literally, can we increase the odds of them being in the crowd? We can, by increasing that crowd.


We wrote in 2010 about the bidder willing to pay the most (Alpha) and the bidder willing to pay the just less than that (Beta) and created this formula for determining the odds of finding Alpha and Beta given the size of the auction bidder pool. The formula was:


B = number of bidders

X = chances of having Alpha and Beta present


X = [[[(2*B)/(B+1)]-1]*min{B,1}]^2


That entire article is here: where you can see that we deduced (by this formula) that a well-advertised auction with one lot and 6 bidders has about a 50% chance of having Alpha and Beta. More than 6 bidders gives a better chance, and less than 6 bidders and there’s more of a chance Alpha and Beta are not there.


Here’s our conclusion. Auctioneers should endeavor to maximize the number of bidders in order to maximize the odds of having Alpha and Beta for each lot. Said another way, if a seller wants the highest prices for his property (lots,) then his auctioneer should work to maximize the odds of finding Alpha and Beta for each lot by maximizing the total number of bidders.


Further, given the objective is to find larger crowds or bidder pools, then what should we do? We should lower the barriers to entry for bidders, and give the bidders as much good news as we can so that they choose to participate.


Besides just making it easy to preview the lots and place bids, the auction itself should — if possible — maximize the message to those bidders that they have the prospect of a deal. We’ve written about this fundamental stimulus many times including here:


The major component of a prospect of a deal is no minimum bids, no reserves, no seller bidding, no seller confirmation — an absolute auction. An absolute auction maximizes the chance of a deal, and thus maximizes the bidder pool — maximizing the chance to find Alpha and Beta thus maximizing the price for the seller.


This isn’t a treatise on the benefits of an absolute auction as much as it is that any auction with a perceived lack of a prospect of a deal will not be successful. There is virtually nothing that is sold at auction exclusively — and buyers have choices. An auction is different in that the bidders have the opportunity to bid and must feel a deal is at least possible or they will buy elsewhere.


And if you don’t believe any of this — try putting up for auction a crisp, new $100 bill with a minimum bid of $101 (other than at a benefit auction, where the bid is for the cause rather than the bill) and see how many people show up to that auction. I can actually save you the experiment because there will be nobody there — and even if there is, there will be no bidding.


This article has been published with permission from the author.


The original article and image can be found here.


Mike Brandly, Auctioneer, CAI, CAS, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, RES Auction Services and Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College, Executive Director of The Ohio Auction School, an Instructor at the National Auctioneers Association’s Designation Academy and America’s Auction Academy. He is faculty at the Certified Auctioneers Institute held at Indiana University and is approved by the The Supreme Court of Ohio for attorney education.