Online auction

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 auctions are used primarily to place multiiple 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]

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.

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 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.

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.

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]

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.

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.

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.[34] 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.