Do online auctions cheat?

At auctions, sellers try to sell the item at a price as much as possible to increase their expected revenue. A buyer's interest is quite the opposite; he wants to buy the item at the lowest possible price.

Do online auctions cheat?

At auctions, sellers try to sell the item at a price as much as possible to increase their expected revenue. A buyer's interest is quite the opposite; he wants to buy the item at the lowest possible price. Cheating happens if they adopt unfair practices to achieve these goals. In a new article, Mohammad Akbarpour of the Stanford Graduate School of Business and Shengwu Li of Harvard University confirm that the most common auction format for online ads gives auctioneers ample opportunity to cheat.

That can undermine the auctions themselves, if bidders become so skeptical that they stay away. One may have false bidders, who are called “accomplices” to participate in the auction and increase the price of the item on purpose. This is known as “accomplice puja”. Another form of cheating for sellers is called “fake bids”, which happens in the second bid auction.

This month's Internet ScamBusters is especially important because it is one of the hottest online scam topics: auction fraud. We have been personally scammed when participating in online auctions in the past, so we want to make sure you avoid these mistakes. The vast majority of those who participate in online auctions are very or somewhat certain that, if they are the winners, they will get what they pay from the seller (94 percent). At the very least, Akbarpour says, auction designers should seriously weigh the possibility that auctioneers may not follow the rules.

In fact, the researchers conclude that the two oldest auction designs, the “price up” and “first price” formats, have real advantages in terms of guaranteeing honest auctioneers. eBay is the best online auction website overall because it is free for buyers, both the seller and the buyer have fraud protection and is not limited only to the United States. Image Many advertisers at online auctions suspect that the bid is manipulated. More than three-quarters (77 percent) of those who sell mostly at online auctions say they won't bid on items in that case.

We want to mention right away that the vast majority of sellers and buyers in online auctions are honest people and keep their promises. According to the FTC, online auctions are one of the worst scams on the Internet, as they separate most people from the most money. eBay is also the best-known online auction site because it offers the safest marketplace platform for both buyers and sellers. So what can you do to protect yourself, besides staying away from online auctions? A lot.

Barrett became the first person in the UK to be prosecuted for fixing online auctions after admitting that he used two separate eBay accounts to bid against him. But auctioneers usually don't disclose the reserve price, so it's hard for bidders to know if the auctioneer actually follows the rules. If you've been looking for car insurance, for example, digital auctioneers organize instant auctions where insurance advertisers bid to place ads on the next page that loads. Auction houses like to refer to these items as “purchased” (although today very few auction houses buy unsold lots from sellers).

Belinda Moskovitz
Belinda Moskovitz

Belinda writes posts for retail, ecommerce, and online auction sites. She's also a music, travel and technology lover. You might find her secretly watching zombie movies.