What is a reserve price?
When a seller creates a new listing and opts for an auction-style listing he can establish a minimum price that he’s willing to accept for the item. If the bidding for the item does not reach the price set by the seller, he is under no obligation to sell the item. Note that the reserve price is hidden from buyers.
Listings will show “reserve not met” message until the price has bet reached. However, sellers can include the reserve price in their description or inform buyers to contact them about it. Sellers are under no obligation to reveal their reserve price.
The rationale behind a reserve price is that it allows for a low monetary entry point which in turn can increase bidding momentum. It also provides protection from selling items at a price under the market value.
Bidding process for an item listed with a reserve price
If you bid on an item that has a reserve price and your maximum bid meets or exceeds the reserve, your bid will be automatically increased to the reserve price.
The seller lists an item with a reserve price of $100 with a starting bid of $1. If bidder A decides to bid $5 on the item the current bid of $1 will increase to $5 but the reserve price will not be met. If no other bids are placed bidder A will not win the item.
If a second bidder joins in, Bidder B, and decides to bid $150 the current bid will increase to $100 (the amount of the reserve). If no other bids are placed, Bidder B will win the item with his $100 bid since the reserve has been met.