What Are Barriers to Entry?
“Barriers to Entry” – In economics, obstacles that make it difficult for a firm to enter a given market. They may arise naturally because of the characteristics of the market, or they may be artificially imposed by firms already operating in the market or by the government. – Brittanica
When conducting a typical private treaty transaction, you only need 2 people to execute a deal; a buyer and a seller. Auctions, on the other hand, are a unique and much different form of commerce. Its sole existence is dependent on multiple potential buyers where every transaction has a winner and one or more losers. That competition is what generates our special marketplaces and the potentially infinite price ceiling for an asset.
Each auction and each auction company must establish criteria that balances the desire for as much participation as possible with a reasonable amount of assurance that any auction contract will be consummated to completion so the seller (and in turn, the auction company) will get paid.
So how does this academic concept apply to abandoned vehicle sales?
Here’s the concept at its basic core as it applies to the abandoned vehicle market:
If your auction vendor has a HIGH barrier to entry, there will be FEWER participants in your auction, which will yield LESS revenue, but have the potential for a higher collection rate.
If your auction vendor has a LOW barrier to entry, there will be MORE participants in your auction, which will yield MORE revenue, but may result in a slightly lower collection rate.
How does Peak Auto Auctions handle barriers to entry?
At Peak Auto Auctions, we have a unique philosophy when it comes to entry barriers. We use a combination of computer-based and human intelligence to allow as many people as possible to enter an auction, but then apply aggressive strategies to restrict or expel persons that are not likely to complete a transaction successfully.
What’s the bottom line impact?
Peak uses advanced online fraud technology, credit card verification, and professional customer service and collections departments to constantly monitor potential and winning bidders to turn electronic bids into completed sales.
Why does Peak adopt this hybrid strategy?
Peak Auto Auctions was born out of a need for the tow industry to have abandoned vehicles sold confidently and accurately. We recognize that our clients have finite space requirements, and need the speed and surety associated with as-is auction sales. We measure our success not only on the price point obtained for our clients, but also the rate of sold vehicles that are promptly paid and picked up.
For more information about Peak Auto Auctions and its abandoned vehicle marketing program, please visit:
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