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

The term "reserve price" in the context of an auction refers to the minimum price that must be met before an item can be sold. This mechanism protects the seller by ensuring that the item is not sold for less than a predetermined amount, giving the seller some control over the outcome of the sale. If the bidding does not reach the reserve price, the item will not be sold, allowing the seller to either retain the item or seek another method to sell it.

In auction settings, this concept is crucial because it enables sellers to set a floor price that reflects the item's value or their desired profit margin. It helps to attract serious bidders who recognize the value of the item being auctioned while also maintaining the seller's interests. Thus, the definition as the minimum price ensures that auctions remain both competitive for buyers and fair for sellers.