An online auction (also electronic auction, e-auction, virtual auction, or eAuction) is an

auction An auction is usually a process of Trade, buying and selling Good (economics), goods or Service (economics), services by offering them up for Bidding, bids, taking bids, and then selling the item to the highest bidder or buying the item from th ...

held over the

internet The Internet (or internet) is the Global network, global system of interconnected computer networks that uses the Internet protocol suite (TCP/IP) to communicate between networks and devices. It is a internetworking, network of networks ...

and accessed by internet connected devices. Similar to in-person auctions, online auctions come in a variety of

types Type may refer to: Science and technology Computing * Typing, producing text via a keyboard, typewriter, etc. * Data type, collection of values used for computations. * File type * TYPE (DOS command), a command to display contents of a file. * Ty ...

, with different bidding and selling rules. eCommerce sales for businesses have been steadily increasing for years, and with the migration of virtually all transactions to digital due to the

COVID-19 pandemic The COVID-19 pandemic (also known as the coronavirus pandemic and COVID pandemic), caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2), began with an disease outbreak, outbreak of COVID-19 in Wuhan, China, in December ...

, worldwide sales through ecommerce channels such as websites and online marketplaces increased overall in 2020 and beyond. There are two primary markets for online auctions: business to business (B2B) and

business to consumer Retail is the sale of goods and services to consumers, in contrast to wholesaling, which is the sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturers, directly or through a wholesaler ...

(B2C). B2C is forecast to have over a 1% annual growth rate, achieving a nearly 22% share of total global retail sales by 2024. B2B ecommerce gross merchandise value showed a similarly steady rate through 2019, as to mirror its retail B2C counterpart. The largest consumer-to-consumer online auction site is

eBay eBay Inc. ( , often stylized as ebay) is an American multinational e-commerce company based in San Jose, California, that allows users to buy or view items via retail sales through online marketplaces and websites in 190 markets worldwide. ...

, which researchers suggest is popular because it is a convenient, efficient, and effective method for buying and selling goods. Despite the benefits of online auctions, the anonymity of the internet, the large market, and the ease of access makes online auction fraud easier than in traditional auctions. The

Federal Trade Commission The Federal Trade Commission (FTC) is an independent agency of the United States government whose principal mission is the enforcement of civil (non-criminal) United States antitrust law, antitrust law and the promotion of consumer protection. It ...

(FTC) categorizes online auction fraud reports with online shopping categories.

History

Online auctions originated on web forums as early as 1979 on

CompuServe CompuServe, Inc. (CompuServe Information Service, Inc., also known by its initialism CIS or later CSi) was an American Internet company that provided the first major commercial online service provider, online service. It opened in 1969 as a times ...

and The Source, as well as through email and

bulletin board system A bulletin board system (BBS), also called a computer bulletin board service (CBBS), is a computer server running list of BBS software, software that allows users to connect to the system using a terminal program. Once logged in, the user perfor ...

s. Auctioneers and sellers would post notices describing items for sale, minimum bids, and closing times. As the popularity of online auctions grew, websites dedicated to the practice began to appear in 1995 when two auction sites were founded. The first online auction site was Onsale.com, founded by

Jerry Kaplan Samuel Jerrold "Jerry" Kaplan (born March 25, 1952) is an American computer scientist, author, futurist, and entrepreneur. He is best known as a pioneer in the field of pen computing and tablet computers. He is the founder of numerous companies ...

in May 1995. Onsale's business model had the company act as the seller. In September 1995,

was founded by French-Iranian computer scientist

Pierre Omidyar Pierre Morad Omidyar (born Parviz Morad Omidyar, June 21, 1967) is a French-born Iranian-American billionaire and the grandson of General Mahmud Mir-Djalali. A technology entrepreneur, software engineer, and philanthropist, he is the foun ...

using a different approach to online auctions by facilitating person-to-person transactions. This was a popular choice with consumers, leading eBay to become the largest e-commerce site in the early 2000s.

Benefits of Online Auctions

A core benefit of an online auction is the removal of the physical limitations of a traditional auction that require attendees to be geographically located together, which greatly reduces audience reach. Online auctions offer advantages to users that traditional auction formats do not offer such as the use of automated bids. Along with these benefits, online auctions have greatly increased the variety of goods and services that can be bought and sold in an auction format.

Types

English auctions

English auctions are also known as open outcry or raise prices. In live settings, English auctions are announced by either an auctioneer or by the bidders, and winners pay what they finally bid to receive the object. English auctions are the most common third-party online auction format and are known for their simplicity. The format is popular due to its ease-of-use in an online environment (since computers are capable of tracking and awarding an auction to the highest bidder from many bids).

Reverse auction

Reverse auction Reverse or reversing may refer to: Arts and media * ''Reverse'' (Eldritch album), 2001 * ''Reverse'' (2009 film), a Polish comedy-drama film * ''Reverse'' (2019 film), an Iranian crime-drama film * ''Reverse'' (Morandi album), 2005 * ''Reverse'' ...

s are used primarily to place multiple sales offers before potential customers. Multiple sellers compete to obtain a buyer's business, and prices typically decrease over time as new offers are made by sellers. They do not follow the typical auction format in that the buyer can see all the offers and may choose which they would prefer. Reverse auctions are used predominantly in a business context for

procurement Procurement is the process of locating and agreeing to terms and purchasing goods, services, or other works from an external source, often with the use of a tendering or competitive bidding process. The term may also refer to a contractual ...

Bidding fee auction

bidding fee auction A bidding fee auction, also called a penny auction, is a type of all-pay auction in which all participants must pay a non-refundable fee to place each small incremental bid. The auction is extended each time a new bid is placed, typically by 10 ...

(also known as a penny auction) requires customers to pay for bids, which they can increment an auction price one unit of currency at a time. The most notable bidding fee auction was Swoopo. Critics compare this type of auction to gambling, as users can spend a considerable amount of money without receiving anything in return. The auction owner makes money in two ways: the purchasing of bids, and the actual amount made from the final cost of the item.

Fraud

The increasing popularity of using online auctions has led to an increase in fraudulent activity. This is usually performed on an auction website by creating a very attractive auction lot, such as a low starting bid level. Once a buyer wins a lot and pays for it, the fraudulent seller will either not proceed with the delivery, or send a less valuable version of the purchased item (replicated, used, refurbished, etc.). Protection to prevent such acts has become available, for example PayPal's buyer protection policy. As

PayPal PayPal Holdings, Inc. is an American multinational financial technology company operating an online payments system in the majority of countries that support E-commerce payment system, online money transfers; it serves as an electronic alter ...

handles the transaction, it has the ability to hold funds until a complaint is resolved and the victim can be compensated. Auction fraud makes up a large percentage of complaints received by the

FBI The Federal Bureau of Investigation (FBI) is the domestic Intelligence agency, intelligence and Security agency, security service of the United States and Federal law enforcement in the United States, its principal federal law enforcement ag ...

’s Internet Crime Complaint Center (around 63% in 2005 and 45% in 2006).

Shill bidding

Shill bidding is the most prominent type of online auction fraud where sellers themselves submit bids to increase the price of an item they have put up for sale, without intending to win. Shill bidding is also one of the most difficult types of fraud to detect, since it is usually conducted by the seller in collusion with one or more bidders in the auction. In 2011, a bidder on eBay became the first individual to be convicted of shill bidding on an auction. By taking part in the process, an individual is sometimes breaking the law, depending on the relevant jurisdiction, for example breaking the European Union fair trading rules which carries out a fine of up to £5,000 in the

United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Northwestern Europe, off the coast of European mainland, the continental mainland. It comprises England, Scotlan ...

Shield bidding

Shield bidding is a technique whereby a buyer uses another account (called a "shield") to discourage other competitors from bidding by artificially increasing the price and then at the last moment withdrawing their bid to allow the actual buyer to win the auction with a lower price. Most online auction sites do not allow withdrawal of bids except in specified circumstances, making this technique impossible to carry out except on sites where such a rule is not implemented.

Spotting Shills and Shields

It is difficult to spot a dirty technique being used by an anonymous or pseudonymous person in online auctions, but it is certainly doable. It can be revealed by examining a seller’s auction history and looking for an account which has bid on every or almost every auction of that seller. If there is someone who meets those characteristics, it is most likely a shill using that account to increase the price. A shield can be spotted similarly to a shill. By doing a search of a person's won auctions, it can be found out whether or not there is another account participating in the same auctions without ever winning anything. If there is, it is possible that the person is using a shield to help them become successful in auctions.

Sale of stolen goods

Online auction websites can be used by thieves or fences to sell stolen goods to unsuspecting buyers. According to police statistics, there were over 8000 crimes involving stolen goods, fraud, or deception reported on eBay in 2009. It has become common practice for organized criminals to steal in-demand items, often in bulk, then sell them online. It is thought to be a safer option than fencing stolen items due to the anonymity and worldwide market online auctions provide.

Interests protection

Government

Governments have identified and taken steps to ensure the safety of online auctions and protect the interests of their citizens, typically by setting up relevant departments to deal with it. In the United States, the

(FTC) takes responsibility for protecting consumers from unfair, fraudulent, and deceptive business practices. The FTC provides several resources for guidance on internet auction fraud and actively investigates fraud involving online auctions. According to the Internet Crime Report, online auction fraud ranks among the top complaints received by the

Internet Crime Complaint Center The Internet Crime Complaint Center (IC3) is a division of the Federal Bureau of Investigation (FBI) concerning suspected Internet-facilitated criminal activity. The IC3 gives victims a convenient and easy-to-use reporting mechanism that alerts ...

(IC3). The

Australian Competition & Consumer Commission The Australian Competition and Consumer Commission (ACCC) is the chief competition regulator of the Government of Australia, located within the Department of the Treasury. It was established in 1995 with the amalgamation of the Australian Tra ...

(ACCC) provides information and advice on online auction fraud through its Scamwatch website. The ACCC actively monitors fraud in the online auction market and takes steps to combat it.

Customers

Fraud victims have volunteered to set up online communities The original intention of these communities is to comfort people, share their experiences for education and provide reliable intermediary services for certain traders. Some victims have also resorted to controversial methods of retaliation. Their actions include publicly revealing the personal information of identified scammers or disrupting transactions by blindly bidding up prices and then refusing to pay. These methods may inadvertently cause harm to ordinary sellers who are mistakenly identified as fraudsters.

Platform

Online auction platforms have made significant efforts to prevent fraud and protect their users. Once fraudulent behavior is identified, the platform can freeze the account of the relevant seller. But this can only passively punish accounts of people who have committed fraudulent behavior. Based on the characteristics of the internet, these people only need to register new accounts.Huang, Z., Chen, H., & Hsu, C. (2019). How online shopping platforms can prevent fraud: Evidence from China. Journal of Business Research, 103, 221-230. https://doi.org/10.1016/j.jbusres.2019.04.023 One of the most effective measures is the use of secure payment systems. These platforms force sellers to get payment through trusted payment gateways, thus providing additional security by acting as a middleman between buyers and sellers and increasing the cost to the fraudster of committing a violation. The current mainstream online platforms act more as "intermediaries" and collect deposits from sellers who sell large-value products. With this approach the money is transferred to the seller's account after the ownership of the item is confirmed and transferred, ensuring the security of the transaction.

References

External links

* {{Authority control American inventions French inventions