Shill bidding persists in online auction platforms like eBay

Although eBay insists that fraudulent bidding is banned on its platform, a number of studies have shown that the practice is widespread, not only on eBay, one of the largest online auction platforms in the world, but also on those of its competitors. One of the latest studies to confirm this was carried out by a member of the Faculty of Information and Communication Sciences at the Universitat Oberta de Catalunya (UOC), Jim Ingebretsen, and a researcher from the National University of Singapore, Tingting Wu. The study, titled "Shill bidding and information in eBay auctions: A Laboratory study", was published in the Journal of Economic Behavior & Organization.

"In shill bidding, the sellers themselves bid for their goods via user accounts created for the purpose of boosting the price artificially, thus making more money for the article auctioned," Ingebretsen explained. He added that "this practice is as common as it is difficult to detect and prevent". Aware of this issue, buyers try to secure auctioned items as quickly as possible to avoid shill bidding, the researchers have concluded, after conducting an experiment with students over a period of nearly three years. Their methodology has enabled them to obtain their own data, independently of the information provided by companies in the sector.

Shill bidding is difficult to detect, but certain resources are available to online auction companies. In the study the authors point out that there are scientists working to develop better algorithms based on machine learning that are able to identify fraudulent sellers. They have also found that the different behaviour of buyers and sellers during bidding makes it possible to detect when the seller is increasing the price artificially. However, Ingebretsen and Wu pointed out that, although it is true that this malpractice damages the reputation of companies that allow it, it also generates additional revenue, as their business model is based on charging a percentage of the final price paid.

Another problem detected in the study is the information available to sellers. "They know how much buyers usually bid and it is useful for them to know at what price articles similar to theirs have been sold for," said Ingebretsen. "The result of all this is that the buyer ends up paying more," the UOC faculty member concluded.

The second price rule

According to the authors, one of the possible reasons why shill bidding is common in eBay auctions is that the final price of the article is determined by the second highest bid submitted. "It is known as the second price rule, and allows a seller to increase the price of an article without buying it," Ingebretsen explained. "The seller just needs to create a false account from which they can strategically increase the price of a product they themselves are selling. The price offered must always be higher than the current second highest bid and lower than the highest," he said.

The researchers added that this type of bidding is more effective when the number of bidders is small, as the margin between the winning bid and the second highest shrinks as the number of buyers increases.

eBay, one of the leaders in online auctions

Online auction platforms are used extensively all over the world, as they are in Spain, where e-commerce has been constantly growing (33% in the second quarter of 2022). One of the leading portals is eBay. As well as holding auctions, the platform engages in e-commerce, selling a wide range of products. Two of the reasons that have positioned eBay among the leading auction platforms are its millions of active users and its relatively good reputation, compared with competitors such as Amazon, eBid and uBid, according to the authors of the study. eBay handles 3% of the world's e-commerce.

This UOC research supports Sustainable Development Goals (SDGs) 8, decent work and economic growth, and 12, responsible production and consumption.

Reference: Ingebretsen Carlson, J. and Wu, T. "Shill bidding and information in eBay auctions: A Laboratory study". Journal of Economic Behavior & Organization, Volume 202, 2022, Pages 341-360, ISSN 0167-2681, https://doi.org/10.1016/j.jebo.2022.08.010

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