A Price Sensitivity Experiment on CraigslistOver the last three weeks I conducted an experiment to decide the best price to charge for a used computer on Craigslist. The experiment was simple in design and successful in execution. That is, I sold the computer at a price I thought was fair. The purchaser went away with assurances that he felt he had received a good buy. Assuming no problems happen as he sets it up to run in his house, this is the essence of a good transaction.

The experiment started when a friend of ours decided to move to another state and, in the process, switch to a laptop rather than transporting her desktop across the country. She did not want to be bothered with disposing of a lot of personal items before the move, so she gave several things away. Knowing my interests, she gave me her HP Media XP desktop and 17 inch monitor with the proviso that I would clean off all her personal data before doing anything I wished with it. Generally, when I get older computers, I clean them up and donate them to some needy student or senior. However, this computer was in excellent shape and for some reason I decided to sell it on Craigslist.

The first step was to try to guess what it would go for. A quick search for similar listings gave me a number, but that was only the average asking price. I still had no idea what the best selling price would be. So I started to look online for the equivalent of a Kelly Blue Book for computers. There are such things that you can find with a simple search, but beware. The first responses I got on searching for “Blue Book for used computers” (okay, so it might not have been the cleverest search) had most of the top responders indicated as risky by my trusty Firefox WOT add-on. But I did realize quickly an important feature of selling a used computer — a feature that I have always overlooked in the past. Where I live, legally disposing of a computer and monitor at a re-cycling site can cost $20 (even more in some cases). This means that if someone gives you a computer free, in fact, you have just picked up a $20 liability unless you can actually sell it or pass it on to another sucker. That consideration must be part of any transaction. Someone will be the last owner and be forced to dispose of it.

With care, I looked at several sites and decided the market is very sensitive to location and other parameters. Any general formulae or guidelines will be only approximate: hence my experiment.

I went back to the current Craigslist listings and determined what I considered a reasonable price given market conditions in my area. Then I listed it at $20 over that price and waited. The initial response was not long in coming. I got an offer to trade my prize computer for professional tattoos. This was not a tempting offer. I am tattoo-less and intend to stay that way. A week went by with no further action.

The next week I re-listed it with a price reduction of $20. The first response was the same offer to trade for tattoos. The parlor probably needed a new computer to keep track of customer accounts. However, on the second day, an impoverished student (self-described) said he needed a computer but did not have that much in his budget; would I come down to what essentially amounted to an educational subsidy? I declined.

The next week I lowered the price another $20. This time the response was totally different. Within hours I had received five firm requests to purchase (both the computer and an extra monitor, which I offered for an additional amount). The next day I received three more offers including one low-ball attempt to get a significant price break. The amazing thing is that the tattoo parlor did not respond this time.

When I called the first responder, he turned out to be the business manager for a local church. I have no idea what such a person is paid, but it cannot be much. So buying a used XP machine was probably the only way he could afford a decent computer. It turned out that, in the past, he had instituted a computer lab at the church and taught computer literacy. That was another life. He preferred XP for some reason. He laughed when I told him about the tattoo offers.

So this free computer turned into an example of the non-linear response of demand to price. It also showed the sensitivity of pricing. Changing a small percent in the price made a huge difference in the response. My wife and I were discussing the results when she dropped an interesting bombshell. “When you listed this time, the ad appeared on the first day of the month when many people get paid,” she said. Her observation might have some merit. The sales price of a used (cheap) computer probably varies with the availability of funds in the likely buying group. This would not be such a major factor when selling a more expensive computer.

Still, in spite of its obvious shortcomings, my experiment was fun and resulted in a mutually beneficial transaction. If any readers are looking for a take-away lesson, it should be that changing the offering price by a few percentage points can make the difference between no interest and filling up your inbox. However, finding that sweet spot is the tricky part.