Analysis: Buyout vs. Bid Rate for Auctions

World of Warcraft has a rich economy based on trade between players. Everything from weapons and armor to pets can be bought and sold in the in-game Auction House. The Auction House functions similarly to eBay, except that only in-game gold and items are exchanged. Players who choose to put goods up for auction can set a minimum starting bid price as well as a "buyout" that allows potential bidders to buy an item outright. Here we will take a look how at the relationship between the minimum bid and buyout price for an auction affects its actual sale price.

By far the largest factor that influences how much profit you make from an auction is its price. Most of the tools here on wowecon.com are meant to help you choose the best price for your auctions. This article is not about choosing the best price for your auctions. Assuming that your auctions are reasonably priced and have a buyout set, your maximum profit comes when that auction is sold at its buyout price. The question is: Are there any strategies for setting your minimum bid and buyout that increase your chance of selling at or near your buyout price? How does the relationship between your bid and buyout affect the chance of making a sale? We will look at over 2 Million bids and auctions from wowecon.com to see if there is a strategy for setting minimum bids and buyouts that lets us squeeze a little more gold out of each auction.

First we will take a look at the buyout rate for successful auctions. That is, among all auctions that successfully sell, what percent sell via a buyout instead of a bid?

Since the actual bid and buyout prices of our data range from a few copper to hundreds of gold, the x-axis of Figure 1 shows instead the ratio of an auction's minimum bid to its buyout price. For example, an auction with a minimum bid of 50s and a buyout of 1g has a (min bid/buyout) ratio of (50s/100s)=0.5. Similarly, an auction with a minimum bid of 75g and a buyout of 100g has a ratio of (75g/100g)=0.75. A very small ratio means that the minimum bid is much smaller than the buyout. If the minimum bid and buyout are equal, the ratio is 1.0.

In Figure 1 we see that the closer your minimum bid is to your buyout, the more likely the auction is to be bought out. Even with a ratio of only 0.25, a minimum bid of 1g and a buyout of 4g, 80% of auctions that sell eventually sell for the buyout price. What Figure 1 does not show, however, is the probability of actually making a sale for each min bid/buyout ratio.

Looking at the volume, there are a couple interesting features. The large spike at x=0.5 shows that it is common for players to simply set the buyout at double the minimum bid. The hill and peak around x=0.8 is also interesting, possibly caused by setting the buyout to a nearby round value. For example, with a minimum bid of 86s someone might be inclined to set the buyout to a nice round value like 1g. We also see the volume taper off from x=0.9 and then spike at x=1.0, with more auctions having minimum bid = buyout than any other value.

In order to find a good min bid/buyout strategy, we need to consider not only the selling price but also the chance of actually making a sale. Figure 2 shows the chance of making a successful sale at each (min bid/buyout) ratio. Not surprisingly, auctions where the minimum bid is significantly lower than the buyout have a larger chance of selling. Assuming that the price is reasonable, an item with a 100g buyout and a 15g minimum bid is about 25% more likely to draw a bid than the same item with a 90g minimum bid. One possible explanation is that the auction with a larger difference between minimum bid and buyout creates a "perceived value" for that item around the buyout amount, making the lower bid seem like a better deal.

If the final sale price of the example auction from the previous section was only 15g that would be a poor tradeoff for the seller. We need to combine the information in Figures 1 and 2 to get a better overall picture of how sale price actually relates to buyout. Figure 3 shows the total percent of auctions that sell via a buyout. Unlike Figure 1, this includes both successful and unsuccessful auctions to factor in the chance-of-sale trend we saw in Figure 2.

Increasing the chance of selling an auction at the buyout price is good, but what we would ultimately like to maximize is the ratio of (actual sale price/buyout) for any auction, whether it is sold via buyout or not. Figure 4 shows the ratio of (actual sale price/buyout) for both successful and unsuccessful auctions. This is similar to Figure 3, except that auctions that sell below their buyout are factored in. After all, if your 100g buyout auction sells for 95g instead of 85g you have still made an extra 10g.

A difference of about 13% in adjusted sale amount can be seen in Figure 4. Notably, the lowest point is near x=0.5, which is one of the most popular ratios of (minimum bid/buyout). The two peaks occur near x=0.15 and x=1.0, with the largest adjusted sale amount near x=0.15.

What might cause this behavior? For x=1.0 all bids are buyouts, and for 0.9 ≤ x < 1.0 there is little to be gained by not paying the full buyout amount to ensure that you win the auction. x=0.5 is one of the lowest points, and one theory is that the minimum bid is neither small enough to generate interest or close enough to the buyout to provoke an outright purchase.

Clearly there is an advantage to selling at x=1.0 instead of x=0.15 even though the adjusted profits are very close. At x=1.0 you have no risk of selling your item below the buyout price. The disadvantage, as seen in Figure 2, is that auctions with the minimum bid equal to the buyout take longer to sell. If you don't mind auctions taking awhile to sell the amount you pay in deposits is probably worth the reduction of risk, though that may not be true for high-deposit items. Since many people prefer to strike a balance between price and how fast their auctions sell, it is worth investigating x=0.15 as a possible alternative.

• Explanation 1 - Most buyers simply buy out the auction at this price, but the rest of the time the auction sells for a bid that is much lower than the buyout.
• Explanation 2 - Most of the time buyers place non-buyout bids at the low minimum and the price eventually gets bid up to near the buyout.

If Explanation 1 is true, sellers using (min bid/buyout) around x=0.15 run a strong risk of making an occasional sale far below their buyout price. Even if this strategy yields profits comparable to x=1.0 in the long-term, the risk of selling a 100g item for 15g periodically makes it unattractive compared to the safer strategy of setting the minimum bid and buyout close to one another.

On the other hand, if Explanation 2 is true then the strategy of setting (min bid/buyout) near x=0.15 is likely to sell auctions faster than x=1.0 and for around the same price, most of the time. We will try to determine whether x=0.15 is a reasonable strategy by looking at bidding behavior.

To determine which of Explanation 1 or Explanation 2 usually occurs for auctions with (min bid/buyout) around x=0.15, we will look at the buyout behavior of bidders. If bidders frequently place buyouts on auctions where (minimum bid/buyout) is around x=0.15, then Explanation 1 is more likely to be true. Otherwise, Explanation 2 is more likely to be true.

Figure 5 shows the percentage of all bids that are buyouts for each value of (minimum at time of bid/buyout). Notice that the x-axis of this chart is different than the other charts shown here because the minimum at time of bid is only equal to the auction's minimum bid for the very first bid on that auction. For example, an auction has a minimum bid of 2g and a buyout of 20g. A bid is placed and the minimum at time of bid is 2g. The new minimum at time of bid is now larger because the next bidder must bid at least 3g to become the high bidder.

Looking at Figure 5 we can see that the percentage of bids that are buyouts corresponds very closely to the difference between the current bid and the buyout. Bidders rarely buy out auctions where the minimum at time of bid is much lower than the buyout price. This tells us that most of the time when a low (min bid/buyout) ratio auction sells for its buyout price, it does not get immediately bought out. Rather, a series of normal bids are placed until the (minimum at time of bid/buyout) ratio becomes larger and then a buyout is finally made. This suggests that Explanation 2 from the previous section is true, meaning that placing auctions with (minimum bid/buyout) near x=0.15 is a reasonable possible strategy for balancing the chance of making a sale with the actual sale price.

• As you might expect, the overall affect the relationship between your bid and buyout has on the sale is very small compared to the price you choose. The data does suggest that you can squeeze a little more gold out of your auctions by setting the minimum bid and buyout to maximize the chance that your auction will sell at or close to its buyout price.
• If you don't mind your auctions taking longer to sell, the best strategy is to set your minimum bid equal to your buyout.
• The data suggests that most auctions with a small minimum bid (around 15% of the buyout price) are likely to eventually sell near the buyout price, and are more likely to sell at all than auctions with min bid = buyout. With this strategy you do face the risk that your auction will sell far below your buyout price, but in the general case it looks like a reasonable way to balance the chance of making a sale with the actual sale price.
• The worst, but common, strategy is to set the buyout to twice the minimum bid. A possible explanation is that the minimum bid is neither low enough to attract interest or close enough to the buyout to prompt an outright purchase.
• As always, the economy varies by realm and faction so this analysis may apply more strongly to some realms than to others. Additionally, the data we included covers many items of different price, so it is only useful for seeing general trends in Auction House behavior and is not meant to be a firm guideline for your sales. Check out our realm and faction-specific charts here on wowecon.com, and feel free to drop us a line at wowecon@wowecon.com.

Happy trading!

• 6/15/2006 - Clarified a few confusing parts, in particular the discussion of the x=0.15 and x=1.0 strategies. Incorporated some feedback from readers and the WoW General Forum.