AuctionBytes:

It’s important to look not only at other seller’s prices, but to look at the price trend of a product over the past 30 days. Has the price been holding steady? If so, the supply is probably in equilibrium with the demand. But if prices are falling, look at how many listings there are. Have the number of individual sellers and the number of listings increased over the past 30 days? Are there more Dutch Auctions for the product? (Dutch auctions are a favorite way for eBay sellers to dump inventory quickly.)

Let’s say your research shows that 300 units of Tommy Hilfiger polo shirts were listed on eBay in the past month. You calculate the average selling price (ASP) of the shirts to be $35. What is going to happen if you buy a pallet load of 500 shirts and start listing them on eBay? You will have more than doubled the supply. A supply increase of this magnitude could drive the price down to below $25. If you paid over $15 each for the shirts, this is a pretty small margin. Worse yet, as the other competitors see the prices drop, they may start dumping their shirts to get out of unprofitable inventory, thereby accelerating the price decline.

You should always be aware of what your competitors are doing. But, sometimes you have to be careful not to compete with yourself. If you are the cause of too much supply, you can drive prices down all by yourself, lowering yours, and everyone else’s margins in the process.

Originally posted by Dane Carlson on March 9, 2005 in Ideas.

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