What does the term "reserve price" refer to in an auction?

The term "reserve price" specifically refers to the minimum price that a seller is willing to accept for an item during an auction. This means that if bids do not reach this specified amount, the item will not be sold. Setting a reserve price protects the seller from having to sell their item for less than its worth or below their desired value.

For instance, if a seller has a reserve price of $500 set for an antique vase, and the highest bid reaches only $400, the vase will not be sold. This mechanism ensures that sellers have a level of control over the final sale price, providing a safeguard against undervaluation. Optionally, it encourages bidders to bid higher, knowing there is a threshold the item will not be sold below. This understanding of reserve prices is crucial for both sellers and bidders to navigate the auction process effectively.