As a bidder what you do has meaning behind it. You don’t reveal your intentions publically. So other people can (try to) interpret your intentions by observing how you behave. Signaling is a term that describes how a bidder, (or auctioneer) reveals their intentions before during and after an auction. How they play out there strategy to be successful. What’s important to remember is that it’s not just what you do that provides information, but it’s also how you do it that gives helpful clues to your rival, if you’re the bidder, and to the bidders if you’re the auctioneer.

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There are six participants in any competitive auction:

1. Ebay: (how could we forget them?). They’ve made a lot of the rules, right?! They are always there at everyone auction. Break rules and they’ll become an active part of the drama.

2. You: (the auctioneer). You’ve made lots of the rules too, and your actions are the most influential actions of all 6 participants.

3. The High Bidder: (at any given time this person can change, but their behavior is constant regardless of which person is filling this spot). This person gets a special treat at the end of the auction, in addition to the item they’ve won, they get to know the other bidders estimated value of the item. No one gets to learn their estimate of the items value, they get to keep that a secret. This ‘treat’ is called the winners curse by economists. Because while they’ve won, they’ve also been educated to the fact that they’ve over estimated the item to some degree, compared to the rest of the participants. I don’t see it as a curse however, I see it as a secret they get to keep.

4. The 2nd place bidder: Sadly, they loose out on the item, and leave the auction with nothing, unless you make a second chance offer to them. In that case they leave in better shape than the winner, as they received the item for a discount to the final bid price. (Read my 2nd Chance offer rant on this).

5. The Tertiary bidders: all the folks who have helped the bid price climb, but have stopped actively bidding at some point. But they pushed the final bid price along in incredibly important ways.

6. The crowd: (viewers). They are mesmerized, tempted to bid, and curious about how the item will end. They could at any moment jump in and take the high bidder spot. Maybe they’re you’re competitors just checking it all out, maybe they’re previous buyers, maybe they’re preparing to bid on your next auction. Maybe they‘ve bid or bought everything you‘ve ever auctioned and are your most loyal customer?

While it’s true you only need two active bidders to make an auction escalate,

The larger the crowd of honestly interested potential bidders, the more bid action you’ll see and the higher final bid price you’ll achieve.

Why is this always true? The single most important reason to have a crowd is going

to sound like a cliché, but it’s not. Here it is:

There is safety in numbers

As the auctioneer you’re nervously waiting to see how it’s all going to play out, right?

And if you’ve believed my ‘low opening bid rant’,

and you’ve set your opening bid price extremely low, you are taking a risk, right?

And the best way to mitigate that risk is to have a large number of people attend the event,

and have them be armed with enough facts about your product to know when it’s selling

for too low a price. The wisdom of the crowd will help protect you.