Online auction

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An online auction (also electronic auction, e-auction, virtual auction, or eAuction) is an auction held over the internet and accessed by internet connected devices. [1] [2] [3] Similar to in-person auctions, online auctions come in a variety of types, with different bidding and selling rules. [4]

Contents

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, 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 (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. [5]

The largest consumer-to-consumer online auction site is eBay, which researchers suggest is popular because it is a convenient, efficient, and effective method for buying and selling goods. [6]

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 (FTC) categorizes online auction fraud reports with online shopping categories. [7]

History

Online auctions originated on web forums as early as 1979 on CompuServe and The Source, as well as through email and bulletin board systems. [8] Auctioneers and sellers would post notices describing items for sale, minimum bids, and closing times. [8] As the popularity of online auctions grew, websites dedicated to the practice began to appear in 1995 when two auction sites were founded. [9] The first online auction site was Onsale.com, founded by Jerry Kaplan in May 1995. [10] Onsale's business model had the company act as the seller. [9]

In September 1995, eBay was founded by French-Iranian computer scientist Pierre Omidyar 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. [9]

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. [11]

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. [12] 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. [13] 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). [14]

Reverse auction

Reverse auctions 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. [15]

Bidding fee auction

A bidding fee auction (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. [16] [17] [18] [19] [20] The auction owner makes money in two ways: the purchasing of bids, and the actual amount made from the final cost of the item.[ citation needed ]

Fraud

The increasing popularity of using online auctions has led to an increase in fraudulent activity. [21] 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, [22] 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 handles the transaction, it has the ability to hold funds until a complaint is resolved and the victim can be compensated. [23]

Auction fraud makes up a large percentage of complaints received by the FBI’s Internet Crime Complaint Center (around 63% in 2005 and 45% in 2006). [24]

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. [25] 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. [25] In 2011, a bidder on eBay became the first individual to be convicted of shill bidding on an auction. [26] 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. [27]

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. [28] 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. [29] According to police statistics, there were over 8000 crimes involving stolen goods, fraud, or deception reported on eBay in 2009. [30] 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. [31]

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 Federal Trade Commission (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 (IC3). The Australian Competition & Consumer Commission (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. [32] 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. [33]

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. [32] 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.

See also

Related Research Articles

A shill, also called a plant or a stooge, is a person who publicly helps or gives credibility to a person or organization without disclosing that they have a close relationship with said person or organization. Shills can carry out their operations in the areas of media, journalism, marketing, politics, sports, confidence games, cryptocurrency, or other business areas. A shill may also act to discredit opponents or critics of the person or organization in which they have a vested interest.

<span class="mw-page-title-main">Auction</span> Process of offering goods or services up for bids

An auction is usually a process of buying and selling goods or services by offering them up for bids, taking bids, and then selling the item to the highest bidder or buying the item from the lowest bidder. Some exceptions to this definition exist and are described in the section about different types. The branch of economic theory dealing with auction types and participants' behavior in auctions is called auction theory.

eBay American multinational e-commerce corporation

eBay Inc. is an American multinational e-commerce company based in San Jose, California, that brokers customer to customer and retail sales through online marketplaces in 190 markets worldwide. Sales occur either via online auctions or "buy it now" instant sales, and the company charges commissions to sellers upon sales. eBay was founded by Pierre Omidyar in September 1995. It has 134 million yearly active buyers worldwide and handled $74 billion in transactions in 2022, 49% of which was in the United States. In 2022, the company had a take rate of 13.25%.

<span class="mw-page-title-main">Sales</span> Activities related to the exchange of goods

Sales are activities related to selling or the number of goods sold in a given targeted time period. The delivery of a service for a cost is also considered a sale. A period during which goods are sold for a reduced price may also be referred to as a "sale".

<span class="mw-page-title-main">Dutch auction</span> Type of auction which begins with a high asking price, and lowers it.

A Dutch auction is one of several similar types of auctions for buying or selling goods. Most commonly, it means an auction in which the auctioneer begins with a high asking price in the case of selling, and lowers it until some participant accepts the price, or it reaches a predetermined reserve price. This type of price auction is most commonly used for goods that are required to be sold quickly such as flowers, fresh produce, or tobacco. A Dutch auction has also been called a clock auction or open-outcry descending-price auction. This type of auction shows the advantage of speed since a sale never requires more than one bid. It is strategically similar to a first-price sealed-bid auction.

<span class="mw-page-title-main">Vickrey auction</span> Auction priced by second-highest sealed bid

A Vickrey auction or sealed-bid second-price auction (SBSPA) is a type of sealed-bid auction. Bidders submit written bids without knowing the bid of the other people in the auction. The highest bidder wins but the price paid is the second-highest bid. This type of auction is strategically similar to an English auction and gives bidders an incentive to bid their true value. The auction was first described academically by Columbia University professor William Vickrey in 1961 though it had been used by stamp collectors since 1893. In 1797 Johann Wolfgang von Goethe sold a manuscript using a sealed-bid, second-price auction.

A bid price is the highest price that a buyer is willing to pay for some goods. It is usually referred to simply as the "bid". In bid and ask, the bid price stands in contrast to the ask price or "offer", and the difference between the two is called the bid–ask spread. An unsolicited bid or purchase offer is when a person or company receives a bid even though they are not looking to sell.

<span class="mw-page-title-main">Japanese auction</span>

A Japanese auction is a dynamic auction format. It proceeds in the following way.

Hi-Living is a Korean online auction website and shopping mall where people from all around the world buy and sell goods and services.

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 to 20 seconds. Once time expires without a new bid being placed, the last bidder wins the auction and pays the amount of that bid. The auctioneer profits from both the fees charged to place bids and the payment for the winning bid; these combined revenues frequently total more than the value of the item being sold. Empirical evidence suggests that revenues from these auctions exceeds theoretical predictions for rational agents. This has been credited to the sunk cost fallacy. Such auctions are typically held over the Internet, rather than in person.

<span class="mw-page-title-main">Auction sniping</span> Bidding at the last moment as an auction strategy

Auction sniping is the practice, in a timed online auction, of placing a bid likely to exceed the current highest bid as late as possible—usually seconds before the end of the auction—giving other bidders no time to outbid the sniper. This can be done either manually or by software on the bidder's computer, or by an online sniping service.

<span class="mw-page-title-main">Auction theory</span> Branch of applied economics regarding the behavior of bidders in auctions

Auction theory is an applied branch of economics which deals with how bidders act in auction markets and researches how the features of auction markets incentivise predictable outcomes. Auction theory is a tool used to inform the design of real-world auctions. Sellers use auction theory to raise higher revenues while allowing buyers to procure at a lower cost. The conference of the price between the buyer and seller is an economic equilibrium. Auction theorists design rules for auctions to address issues which can lead to market failure. The design of these rulesets encourages optimal bidding strategies among a variety of informational settings. The 2020 Nobel Prize for Economics was awarded to Paul R. Milgrom and Robert B. Wilson “for improvements to auction theory and inventions of new auction formats.”

Bidtopia was an e-commerce site originally launched in 2007 as a private auction site for Warehouse86 Ventures, LLC. Paul St. James, an owner of Bargainland, which had been the largest PowerSeller on eBay that same year, started the new enterprise in response to changes in eBay policies regarding high volume sales of brand name merchandise and restrictions on sellers with poor customer feedback. Bidtopia suffered the loss of one of its three distribution centers in 2008, and went offline and possibly out of business in early 2010.

iOffer

iOffer was a San Francisco-based online trading community that was launched on May 1, 2002 by Steven Nerayoff. As of February 2008, it claimed to have nearly one million total users, including approximately 75,000 sellers, although this information cannot be independently verified, nor is it known how many of these users are active.

eBay has faced controversy, including failure to combat fraud committed by buyers and sellers, concerns over its rating systems, and concerns over sales of controversial or illegal items.

Customer to customer markets provide a way to allow customers to interact with each other. Traditional markets require business to customer relationships, in which a customer goes to the business in order to purchase a product or service. In customer to customer markets, the business facilitates an environment where customers can sell goods or services to each other. Other types of markets include business to business (B2B) and business to customer (B2C).

<span class="mw-page-title-main">Pricefalls</span> American Internet company

Pricefalls, LLC was an American Internet company that managed Pricefalls.com, an on-line retail marketplace, and PFTech, a leading marketplace platform developer. In 2019, Pricefalls, LLC was acquired by Loblaw, Canada's largest retailer.

<span class="mw-page-title-main">Reverse auction</span> Auction with one buyer and many potential sellers

A reverse auction is a type of auction in which the traditional roles of buyer and seller are reversed. Thus, there is one buyer and many potential sellers. In an ordinary auction also known as a forward auction, buyers compete to obtain goods or services by offering increasingly higher prices. In contrast, in a reverse auction, the sellers compete to obtain business from the buyer and prices will typically decrease as the sellers underbid each other.

There are many types of e-commerce models', based on market segmentation, that can be used to conducted business online. The 6 types of business models that can be used in e-commerce include: Business-to-Consumer (B2C), Consumer-to-Business (C2B), Business-to-Business (B2B), Consumer-to-Consumer (C2C), Business-to-Administration (B2A), and Consumer-to-Administration

References

  1. ↑ Kleusberg, Peter (2009). E-Collaboration und E-Reverse Auctions. Saarbrücken. pp. 16–25.{{cite book}}: CS1 maint: location missing publisher (link)
  2. ↑ Engelbrecht-Wiggans, Peter (2006). E-Sourcing in Procurement. Management Science. p. 581.
  3. ↑ Wyld, David C. (2012). REVERSE AUCTIONS 101. Louisiana: Southeastern Louisiana University.
  4. ↑ Friedrich, Michael; Ignatov, Dmitry (2019). "General Game Playing B-to-B Price Negotiations" (PDF). CEUR Workshop Proceedings. 2479: 89–99.
  5. ↑ "eCommerce Sales & Size Forecast". www.trade.gov. Retrieved 2023-01-30.
  6. ↑ Bertsimas, Dimitris; Hawkins, Jeffrey; Perakis, Georgia (January 2009). "Optimal bidding in online auctions". Journal of Revenue and Pricing Management. 8 (1): 21–41. doi:10.1057/rpm.2008.49. hdl: 1721.1/4006 . S2CID   9033989. ProQuest   214492358.
  7. ↑ "Fraud Reports". public.tableau.com. Federal Trade Commission . Retrieved 2023-01-30.
  8. 1 2 Banks, Michael (20 August 2006). "The Very First Online Auctions". Ecommerce bytes. Retrieved 14 April 2019.
  9. 1 2 3 Bunnell, David (2001). "The eBay Business Model". The ebay Phenomenon: Business Secrets Behind the World's Hottest Internet Company. John Wiley & Sons. pp. 71–81. ISBN   9780471436799.
  10. ↑ "Auction of Collectibles on the Internet". The New York Times . 23 May 1995. Retrieved 18 September 2019.
  11. ↑ Bapna, R.; Goes, P.; Gupta, A. (2001). "Insights and analyses of online auctions". Communications of the ACM. 44 (11): 42. CiteSeerX   10.1.1.22.1515 . doi:10.1145/384150.384160. S2CID   57631.
  12. ↑ "English Auction". Corporate Finance Institute. Retrieved 2022-11-08.
  13. ↑ Pinker, E. J.; Seidmann, A.; Vakrat, Y. (2003). "Managing Online Auctions: Current Business and Research Issues" (PDF). Management Science. 49 (11): 1457. doi:10.1287/mnsc.49.11.1457.20584.
  14. ↑ Ockenfels, Axel; Reiley, David; Sadrieh, Abdolkarim (December 2006). "Online Auctions". doi: 10.3386/w12785 .{{cite journal}}: Cite journal requires |journal= (help)
  15. ↑ Jap, Sandy (3 July 2003). "An Exploratory Study of the Introduction of Online Reverse Auctions". Journal of Marketing. 67 (3): 96–107. CiteSeerX   10.1.1.196.9582 . doi:10.1509/jmkg.67.3.96.18651. JSTOR   30040539. S2CID   16065348.
  16. ↑ Atwood, Jeff (11 December 2008). "Profitable Until Deemed Illegal". Coding Horror. Retrieved 3 January 2013.
  17. ↑ Gimein, Mark (12 July 2009). "The Big Money: The Pennies Add Up at Swoopo.com". The Washington Post. Retrieved 26 April 2010.
  18. ↑ Atwood, Jeff (25 May 2009). "Penny Auctions: They're Gambling". Coding Horror. Retrieved 3 January 2013.
  19. ↑ "Is Swoopo Nothing More Than a Well-Designed Gimmick?". Technologizer.com. 17 September 2008. Retrieved 3 January 2013.
  20. ↑ "Red Tape - An iPad for $2.82, or illegal gambling?". May 14, 2011. Archived from the original on 2011-05-14.
  21. ↑ Albert, M. R. (2002). "E-Buyer Beware: Why Online Auction Fraud Should Be Regulated". American Business Law Journal. 39 (4): 575–644. doi:10.1111/j.1744-1714.2002.tb00306.x. S2CID   153954084.
  22. ↑ "Auction Scams". OnlineAuctionReviews.org. Archived from the original on 26 February 2014. Retrieved 12 December 2012.
  23. ↑ "What is PayPal Buyer Protection?". PayPal.
  24. ↑ "FBI targets online auction sites' criminal constituency". networkworld. 31 August 2007.
  25. 1 2 Majadi, Nazia; Gray, Trevathan; Jarrod, Heather (Sep 2018). "A Run-Time Algorithm for Detecting Shill Bidding in Online Auctions". Journal of Theoretical and Applied Electronic Commerce Research. 13 (3): 17–49. doi: 10.4067/S0718-18762018000300103 . hdl: 10072/381662 . ProQuest   2097634393.
  26. ↑ "Man fined over fake eBay auctions". BBC News. 5 July 2010.
  27. ↑ "Warning over eBay bidding trick". BBC News. 20 April 2010.
  28. ↑ "The Hazards of Online Auctions". Garage Technology Ventures. Retrieved 14 April 2019.
  29. ↑ "Stolen-Property Purchases Leave Ebay Buyers Burned". San Jose Mercury News. 11 June 2002. Archived from the original on 25 January 2013.
  30. ↑ "Ebay: Brisk Bidding in stolen goods". The Sunday Times. 11 April 2009.
  31. ↑ "Target, other stores battle theft rings fencing stolen goods on Web". The Seattle Times. 6 May 2011.
  32. 1 2 Chua, C.E.H.; Wareham, J. (October 2004). "Fighting Internet auction fraud: an assessment and proposal". Computer. 37 (10): 31–37. doi:10.1109/MC.2004.165.
  33. ↑ 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
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