What is the reservation price?
Sometimes it is called the The Walk Away Point , the reservation price is a concept that really approaches two different perspectives. One approach has to do with the price that the buyer is willing to pay in exchange for a given good or service. The second approach is related to the price that the seller is willing to accept in exchange for the product. Both approaches often form the basis for negotiating the final selling price, a process that is common in many countries around the world for everything from real estate to fresh food.
When the reservation price is focused on the buyer's desires, it reflects the maximum amount that the buyer is willing to pay to obtain the product. This price is influenced by several factors, such as the current financial circumstance of the buyer. This maximum price can also be determined on the basis of the availability of similar products or the buyer's personal assessment how much satisfaction will receive from the purchase.
The reservation price can also be accessed from the seller's point of view. In the case of this, the price is often determined on the basis of the number of resources that the seller has committed to the creation and production of the product. Ideally, the seller will want to achieve a certain level of profit to cover all the expenses and have some other earnings that make the whole procedure in time and effort. This minimum affordable price is sometimes not tradable, although some traders allow some haggling with potential buyers, if the final selling price is enough to cover expenditure and maybe a little more.
Many auctions use the reservation price. The price basically determines the starting point at which offers will be accepted from potential buyers. Any buyer who is not willing to pay this minimamin does not provide the price per item. Buyers who are still interested in the auction will continue to offer until everyone has their maximum offer or reservation price. A candidate who eventually wins does not necessarilypay the maximum price it personally set for auction; Everything that is necessary is to overcome reservation prices observed by all other candidates.
The wide concept of the reservation price is also found in other applications. For example, a worker who is looking for a job has an idea of the smallest amount of salary or wages that must be created to make work in time of a worker. This would be known as a reservation wage. On the other hand, a subtle buyer always wants to save money for purchases, which stretches a one -time income to provide more satisfaction. The buyer therefore sets the maximum amount willing to pay for the product, setting a reservation or sending the price.