Online auction

From Wikipedia, the free encyclopedia

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]

The e-commerce and online auction industry, measured by revenue, was $995.8 billion in 2023.[5] eCommerce sales for businesses have been steadily increasing for years, and with the migration of virtually all transactions to digital due to the COVID Pandemic, worldwide sales through ecommerce sales channels such as websites and online marketplaces increased overall in 2020.

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.[6]

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.[7]

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 FTC categorizes online auction fraud reports with online shopping categories.[8]


Online auctions originated on web forums as early as 1979 on CompuServe and The Source, as well as through email and bulletin board systems.[9] Auctioneers and sellers would post notices describing items for sale, minimum bids, and closing times.[9] As the popularity of online auctions grew, websites dedicated to the practice began to appear in 1995 when two auction sites were founded.[10] The first online auction site was, founded by Jerry Kaplan in May 1995.[11] Onsale's business model had the company act as the seller.[10]

In September of 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.[10]

Benefits of Online Auctions[edit]

A core benefit of an online auction is the removal of the physical limitations of a traditional auction that requires attendees to be geographically located together which greatly reduces audience reach.[12]

Online auctions offer advantages to users that traditional auction formats do not offer such as the use of automated bids, using search engines to find items, and the ability for users to view items by categories. 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.


English auctions[edit]

English auctions are also known as open outcry or raise prices.[13] In live settings, English auctions are announced by either an auctioneer or by the bidders, and winners pay what they bid to receive the object. English auctions are the most common third-party online auction format and are known for their simplicity.[14] 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).[15]

Reverse auction[edit]

Reverse auctions are where the roles of buyer and seller are reversed. Multiple sellers compete to obtain the buyer's business, and prices typically decrease over time as new offers are made. 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.[16] Reverse auctions bring buyers and sellers together in a transparent marketplace. The practice has even been implemented for private jet travel on the online auction site Marmalade Skies.

Bidding fee auction[edit]

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. On English auctions for example, the price goes up in 1 pence (0.01 GBP) increments.

Critics compare this type of auction to gambling, as users can spend a considerable amount of money without receiving anything in return.[17][18][19][20][21] The auction owner (typically the owner of the website) makes money in two ways: the purchasing of bids, and the actual amount made from the final cost of the item.[citation needed]


Shill bidding[edit]

Shill bidding is the most prominent type of online auction fraud where sellers submit bids to increase the price of an item without intending to win.[22] Shill bidding is also one of the most difficult types of fraud to detect, since it is usually conducted by the seller of the auction in collusion with one or more bidders in the auction.[22] In 2011, a member of eBay became the first individual to be convicted of shill bidding on an auction.[23] By taking part in the process, an individual is breaking the European Union fair trading rules which carries out a fine of up to £5,000 in the United Kingdom.[24]

Shield bidding[edit]

Shield bidding is a technique involving a buyer using 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 don't allow withdrawing bids, therefore making this technique impossible to perform. This technique can still be taken advantage of on sites where this rule is not implemented.

Spotting Shills and Shields[edit]

It is difficult to spot a dirty technique being used by an anonymous or pseudonymous person in online auctions, but it is certainly doable.[25] 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.


The increasing popularity of using online auctions has led to an increase in fraudulent activity.[26] This is usually performed on an auction website by creating a very appetizing auction, such as a low starting amount. Once a buyer wins an auction and pays for it, the fraudulent seller will either not pursue with the delivery,[27] or send a less valuable version of the purchased item (replicated, used, refurbished, etc.). Protection to prevent such acts has become readily available, most notably PayPal's buyer protection policy. As PayPal handles the transaction, they have the ability to hold funds until a conclusion is drawn whereby the victim can be compensated.[28]

Sale of stolen goods[edit]

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 selling them online. It is thought to be a safer option than fencing stolen items due to the anonymity and worldwide market it provides.[31] 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).[32]

See also[edit]


  1. ^ Kleusberg, Peter (2009). E-Collaboration und E-Reverse Auctions. Saarbrücken. pp. 16–25.
  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. ^ "The Best Online Auction Websites for 2023". Investopedia. Retrieved 2023-01-30.
  6. ^ "eCommerce Sales & Size Forecast". Retrieved 2023-01-30.
  7. ^ 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. S2CID 9033989. ProQuest 214492358.
  8. ^ "Fraud Reports". Federal Trade Commission. Retrieved 2023-01-30.
  9. ^ a b Banks, Michael (20 August 2006). "The Very First Online Auctions". Ecommerce bytes. Retrieved 14 April 2019.
  10. ^ a b c 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.
  11. ^ "Auction of Collectibles on the Internet". The New York Times. 23 May 1995. Retrieved 18 September 2019.
  12. ^ Bapna, R.; Goes, P.; Gupta, A. (2001). "Insights and analyses of online auctions". Communications of the ACM. 44 (11): 42. CiteSeerX doi:10.1145/384150.384160. S2CID 57631.
  13. ^ "English Auction". Corporate Finance Institute. Retrieved 2022-11-08.
  14. ^ 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.
  15. ^ Ockenfels, Axel; Reiley, David; Sadrieh, Abdolkarim (December 2006). "Online Auctions". doi:10.3386/w12785. {{cite journal}}: Cite journal requires |journal= (help)
  16. ^ Jap, Sandy (3 July 2003). "An Exploratory Study of the Introduction of Online Reverse Auctions". Journal of Marketing. 67 (3): 96–107. CiteSeerX doi:10.1509/jmkg. JSTOR 30040539. S2CID 16065348.
  17. ^ Atwood, Jeff (11 December 2008). "Profitable Until Deemed Illegal". Coding Horror. Retrieved 3 January 2013.
  18. ^ Gimein, Mark (12 July 2009). "The Big Money: The Pennies Add Up at". The Washington Post. Retrieved 26 April 2010.
  19. ^ Atwood, Jeff (25 May 2009). "Penny Auctions: They're Gambling". Coding Horror. Retrieved 3 January 2013.
  20. ^ "Is Swoopo Nothing More Than a Well-Designed Gimmick?". 17 September 2008. Retrieved 3 January 2013.
  21. ^ "Red Tape - An iPad for $2.82, or illegal gambling?". May 14, 2011. Archived from the original on 2011-05-14.
  22. ^ a b 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. ProQuest 2097634393.
  23. ^ "Man fined over fake eBay auctions". BBC. 5 July 2010.
  24. ^ "Warning over eBay bidding trick". BBC. 20 April 2010.
  25. ^ "The Hazards of Online Auctions". Garage Technology Ventures. Retrieved 14 April 2019.
  26. ^ 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.
  27. ^ "Auction Scams". Archived from the original on 26 February 2014. Retrieved 12 December 2012.
  28. ^ "What is PayPal Buyer Protection?". PayPal.
  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. ^ "FBI targets online auction sites' criminal constituency". networkworld. 31 August 2007.

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