What defines an auction with reserve?

An auction with reserve is characterized by the auctioneer having the discretion to determine whether or not to sell the item based on the bids received. In this scenario, there is a predetermined minimum amount, known as the reserve price, that the auctioneer expects to be met before the item will actually be sold. This means that if the highest bid does not meet or exceed this reserve price, the auctioneer is not obligated to complete the sale; they can choose to withdraw the item from the auction.

This mechanism allows sellers to protect their interests and ensures that they do not sell an item for less than they consider acceptable. It introduces an element of strategy for bidders, as they may need to consider the reserve price while placing their bids. Understanding this structure is crucial for both auctioneers and bidders, as it directly influences the bidding process and outcomes during an auction.