What is Shill Bidding and How does it Affect the Marketplace?
Commentary by bottle den founder Wil Martindale

Shill bidding is the dishonest and deceptive practice of  bidding on ones own auction, with the intent of driving up the final bid price. The intent of the shill bidder is not to win, but to create interest, excitement and a higher perceived value. The practice most commonly takes place in an online auction format, due to the relative ease of obscuring ones identity as an online bidder, as well as the opportunity to set a reserve price, which is typically discouraged in live auction formats.

At a live auction, shill bidding is uncommon. It can take place through a proxy bidder (someone who agrees to bid on your behalf) but this is risky and costly, since there may be a consignment fee and/or an auctioneers fee, usually around 12% of the bid price. In addition, the proxy bidder may require compensation. A consigner could shill bid his own items at a live auction, but there is even greater risk of discovery, and the fee risk still applies. Therefore live auctions are relatively free from shill bidding due to risk, and higher costs in the event that the shill bid is not topped.

Live auctioneers who offer online auctions have a greater inherent likelihood of attracting shill bidders because online identities are more easily obscured than in a live auction--and the cost of attending a live auction is eliminated. While shill bidding the major auction houses online is much more convenient and less risky, the auctioneer fee still applies. Additionally, the major auction houses generally will not allow a high reserve (or any reserve for that matter) which would protect the shill bidder against the risk of paying the auctioneers fee.

While shill bidding certainly pre-dates the advent of internet based auctions, there has never been a more perfect incubator for shill bidding than eBay, currently the worlds largest online auction phenomenon.

An extremely important distinction between eBay and other auctions formats is the ability for the seller to set an arbitrary reserve price. The shill bidder can set a reserve very near the top end of an item's market value and bid repeatedly with one or several fraudulent identities until reaching a price just below the reserve. If no higher competitive bid is made, the reserve is not met and the auction ends--in which case the shill bidder (1) pays no final value fee, and (2) can re-list the item with no re-listing fee. This creates a ideal system for shill bidding, as final value fee's are not only much lower than typical live auction fees, but can be avoided altogether, using this methodology.

For nearly a decade, shill bidders have created fraudulent eBay identities for the purpose of shill bidding, buying only, or selling only, to confuse their one true identity in the eBay auction process. There is some degree of effort involved in creating viable duplicate identities within eBay, but the biggest drawback for shill bidders has been that eventually these identities come to be recognized by experienced bidders, who then adjust their bidding behavior as a counter measure.

Shill bidders sometimes change their eBay identity to further confuse experienced bidders, but this often creates suspicion by its very nature, and the new identity loses it's prior feedback rating. But before getting too deep into the intricate mechanisms that eBay has developed and marketed over the years to create the perception that Buyer or Seller ratings are a real indication of integrity or transparency, it goes without saying that the unprecedented success of eBay is proof enough that the perception was indeed successfully created.

Now that eBay has adopted a standard of actually hiding bidder identities, I believe this perception is changing. It is obvious to many veteran eBay users that the practice of hiding bidder identities makes an already ideal environment for shill bidding even more suspect. Experienced bidders can no longer see the duplicate identities of known shill bidders, and these shill bidders no longer need to periodically change identities and lose their ratings.

So I predict that a major paradigm shift is about to occur, whereby the public trust in eBay will drop dramatically. This is already being seen in the eBay Community forums and many other open forums throughout the world wide web. Furthermore, the growing "buzz" in these forums raises the overall level of public awareness of shill bidding and similar deceptive practices in an ever increasing world of online fraud, which eBay now seems to be a growing part of. More and more dishonest people will see the opportunity to exploit the situation, while more and more honest people will simply walk away from online auctions altogether.

For bottle people like you and I, there is a silver lining to this dark cloud. Whereas in the past, the predominance of eBay has ushered in the decline of the live "bottle show" I see a probable resurgence here, in light of the impending decline of eBay. Collectors will begin to see the merit of good old fashioned person to person contact and negotiation, where there is no hidden identity, no shill bidding, no hidden damage and "aqua" is seen as "just aqua" (not teal blue, or blue, or teal, or green). You will see and hold what you are buying, so there's no opportunity for disappointment, nor the fear of reciprocal "negative feedback". The value of  integrity will be based on your reputation in real person to person dealings alone.

And finally, the online direct sale format will gain validity, as the auction format declines. Many online sellers offer fair prices and deal honestly. Those high integrity sellers are found in my links section, and if you agree with this commentary I hope you will support them. Remember, sellers set a fixed price in the direct sale format, so there is no possibility of shill bidding or any other form of bidder madness driving the item up way past its market value. In fact, many times we take a little less in the spirit of bargaining. I hope former supporters of eBay will take advantage of the free listing software here at the bottle den and give it a try. You may find those bargains right here.