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Shill Bidding, the cheek of it!

By Gillian Meier

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Published: 04Dec2007
Word count: 870
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Isn't it unbelievable that some people have the audacity to partake in the evil act of Shill Bidding, solely for the devious self-serving purpose of raising the prices on their own products that they are auctioning off online?

To fully understand the concept of shill bidding, you need to take a step back and ensure that you comprehend the business of auctions - and for the purpose of this article, online auctions specifically.

An auction website is a platform which is best explained as being a virtual shopping channel that enables sellers to sell their products to autonomous buyers. Many are of the perception that the auction websites themselves are responsible for the sales process, including stock control, shipping of items and receipt of payment. This is a misconception. While an auction website is a place of trade, the process is very different to an e-tailer (i.e. online retailer) in that the stock that is sold via online auctions are sourced, sold and shipped solely by the seller who is making use of the online auction tool to facilitate the sale. Now that you know exactly what an online auction website is, let's move on to the next bit of auction jargon that we spoke of earlier, namely 'Shill Bidding'.

Quite simply put, Shill Bidding is when sellers place bids (whether blatantly or under a disguise) on their own listings with the intent to raise the bid price in the hope that other bidders would feel forced to bid for that item at a higher price, thereby artificially inflating the perceive market value or desirably of the product that is on auction.

Often a family member or roommate may bid on the seller's item because they really want to win the item. The reality however, is that these bidders are in a situation where they are usually able to communicate directly with the seller, thereby creating a unique scenario that is unfair to other bidders that do not have direct contact with the seller. For this reason it is regarded as unfair practice for these bidders to bid on the seller's item in the traditional auction-style listing. Should a family member or friend genuinely be interested in purchasing the product, the seller should resort to listing the item as a straight-forward sale with a fixed price (usually called something like a 'Buy Now' on the online marketplace). This removes the risk of misleading other potential buyers about the market value of the product, as the price is specified and can therefore not be inflated at any point in time.

By now you may feel a little overwhelmed by the terminology that has been thrown around in this article. In the interest of ensuring that there is absolutely no confusion, let's take two steps back and clarify exactly what an 'auction' is. An auction is when an item is listed for sale (more specifically, for bid) with a set starting price and in some cases have a reserve price where the buyer is required to place bids according to the bid increment set in the auction. Before we get ahead of ourselves, let me clarify that a bid increment is the value by which each bid placed increases during the auction, and a reserve price is the minimum price that a seller is willing to accept for an item. A sale will therefore only be concluded when the reserve price is met (the reserve price is set at the seller's discretion and it is usually not a prerequisite for all auctions).

Now that we have clarified the relevant auction 'lingo' you can appreciate why most condemn the act of Shill Bidding. It is regarded by most online auction website owners as a deceitful and underhanded tactic used mostly by conniving scam artists. Each auction website will have their own set of terms and conditions, however most reputable online auction websites have a strict policy against this sort of behaviour and would usually blacklist any seller from using the site in future. In some countries, shill bidders have been criminally prosecuted for Shill Bidding where such prosecutions have resulted in both misdemeanor and felony convictions and large penalties including fines and restitution of damages.

Online marketplaces rely heavily on the integrity and reputation that is reflected in its community in order to become and remain successful. Shill Bidding can destroy the credibility of such marketplaces very quickly. Not only does it damage the trustworthiness of the website itself, it completely distorts the bidding process and hurts the buyer.

Online auctions are certainly not doom and gloom. In fact, one of the beauties of selling products in an auction is that you allow the market to determine the true value of a product, based on the demand and desirability of that particular item, rather than dictating to the marketplace what the price should be. Very often this price exceeds the seller's expectations - as what the seller may have regarded as trash may very well be considered a treasure to the buyer, who will quite happily pay an above market price for the simple purpose of becoming the new owner of that rare find.

bidorbuy is South Africa's largest online shopping marketplace. Visit http://www.bidorbuy.co.za for more information.

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