Coin Dealer Ethics: Shill Bidding for Safety
Tuesday February 12, 2008
My fiancé, Curtis Clay, found a discussion on a German Numismatics Forum that he thought would make a great ethics discussion, and I agree with him, so consider the following scenario and then share your opinion below:
Beachcomber (his forum handle) is a coin collector and part time dealer who sells coins he no longer wants to keep. He sells the coins on eBay, using a low starting price and no reserve. (A reserve is a hidden minimum amount of money the seller will accept. If nobody bids the reverse amount or higher, the coin doesn't sell. However, buyers don't like reserve-price auctions because they never know how much they'll have to bid to actually win the coin, and many buyers won't bid on reserve price auctions at all.)
Rather than use a reserve, Beachcomber has a friend execute a shill bid for him if the coin is selling for too little money near the end of the auction. (Shill bidding is when someone bids on behalf of the auction seller, usually to drive up prices or prevent losses. It is against eBay's rules.) Beachcomber's logic is that he can make the maximum profit on his coin if he can start his bids very cheaply, thereby engaging more bidders, but he doesn't want to take the risk of selling the coin for too little money, either, so he buys the coin himself, if necessary, via his friend's shill bid. Beachcomber doesn't feel that he is doing anything wrong because he still pays eBay's fees when his shill bid is successful, so he's not defrauding eBay out of any profit; he just wants to prevent losses on his own part.
What do you think? Has Beachcomber found a nifty way to prevent losing money, while at the same time not defrauding eBay? Or is Ebay's fee even the real issue here? Share your views via the "comments" link below, and next week we'll have a look at what you think.
Beachcomber (his forum handle) is a coin collector and part time dealer who sells coins he no longer wants to keep. He sells the coins on eBay, using a low starting price and no reserve. (A reserve is a hidden minimum amount of money the seller will accept. If nobody bids the reverse amount or higher, the coin doesn't sell. However, buyers don't like reserve-price auctions because they never know how much they'll have to bid to actually win the coin, and many buyers won't bid on reserve price auctions at all.)
Rather than use a reserve, Beachcomber has a friend execute a shill bid for him if the coin is selling for too little money near the end of the auction. (Shill bidding is when someone bids on behalf of the auction seller, usually to drive up prices or prevent losses. It is against eBay's rules.) Beachcomber's logic is that he can make the maximum profit on his coin if he can start his bids very cheaply, thereby engaging more bidders, but he doesn't want to take the risk of selling the coin for too little money, either, so he buys the coin himself, if necessary, via his friend's shill bid. Beachcomber doesn't feel that he is doing anything wrong because he still pays eBay's fees when his shill bid is successful, so he's not defrauding eBay out of any profit; he just wants to prevent losses on his own part.
What do you think? Has Beachcomber found a nifty way to prevent losing money, while at the same time not defrauding eBay? Or is Ebay's fee even the real issue here? Share your views via the "comments" link below, and next week we'll have a look at what you think.
Comments
I think it’s absolutely unethical. The question isn’t eBay’s fees, it’s the integrity of the auction system. If you aren’t willing to sell your item at the starting price, then start at a higher price. It’s unethical to waste people’s time by offering them a bid you won’t honor.
Beachcomber wants to have his cake and eat it too, as it were. Since his practice is in violation of eBay rules, he should be censured for that alone. If he was an ethical person he would set a reserve and deal with the bidders he gets. He could always relist unsold items at a lower reserve or no reserve at all if he really wants to sell them.
Unfortunately this is very common among eBay sellers & there’s not a whole lot anyone can do about it. Rules or no rules, proving fraud in this scenario would be a tough one. Face it, everyone’s out to make a buck the fastest, easiest way they can. I worry more about the seller who doesn’t deliver, or delivers inferior product, more than I worry about losing a bid or even why I lost it.
This is a lie and a cheat. If there is no reserve, there is no reserve. This practice creates the lie. This is cheating, as an auction draws people that believe the process will create the market price (what folks are willing to pay). I bet he uses a lot of second chance offers too…the shill raises the bid, his friend wins, so he offers to the next lower bidder, who should have won anyway.
Personally, I think all items on E-bay should have a reserve price. The con has gone on long enough. This forces the seller to sell the item not playing games with honest people.If you don’t want to sell the item don’t list it.
When an item is put up for sale the seller is taking a chance that he may not get the return he would like to get. I am sure that there are times when he gets more than he expected. Does he send that amount back to the buyer, of course not. Therefore, I feel that it is unethical what Beachcomber is doing. Put a reserve and hope for the best.
The question was answered when the statement was made that shill bidding was against Ebay policy. The seller made a contractual agreement with Ebay to do business on their web site. To violate that agreement is more than unethical, it is simply wrong.
This is a true NO-BRAINER. This is called internet FRAUD–THERE ARE FEDERAL LAWS ON THE BOOKS THAT PROVIDE STIFF PENALTIES FOR THIS–JUST LIKE INSIDER TRADING. He should be warned ONCE–THEN BANNED FROM INTERNET SALES FOR LIFE–AND GIVEN 5 YEARS IN A FEDERAL PENITENTIARY ON A VIOLATION OF THE BAN. ON THE SECOND, STIFF FINES AND COMPENSATION TO THE VICTOMS IS IN ORDER. ASK ANY LAWYER. OUR OPINIONS DON’T MATTER HERE–ONLY THE LAW DOES. END OF SUBJECT.
Also, the best way to handle these auctions that often sell too cheaply is to simply end the auction early, if there are no bids. If there are bids–SIMPLY CANCEL THEM, AND END THE AUCTION EARLY. If you state in your listing that the seller reserves the right to do that (serious bidders only, etc.), then the seller is within the law, E-Bay rules, and other ethical considerations. Why is everyone so confused about this EXTREMELY SIMPLE scenario??? Most high school kids could easily figure this out. Get with it folks, or get off of E-Bay.
This is highhy unethical, but unfortunately pretty common. I have bid on items early with my higest maximum bid, only to find by the end of the auction the item is right up to the bid amount. If I want it I would have to bid higher. The only answer, if you wish to bid on Ebay, keep your bidding to the last few minutes and you will thwart this practice. The shill bidder won’t have time to bid you out of the item.
I simply do not list items that I KNOW usually get sniped in the last few moments on the cheap, unless I INTEND them to be for purposes of GAINING NEW CUSTOMERS. I do the research by browsing MANY auctions every day to see the trends and past history of items before I list. I WANT a few things to go cheap to get bidders interested in my other auctions and to know that I’m honest and DON’T place shill bids–EVER. This is a great way to EARN trust from bidders. And, why wouldn’t ANYONE WANT TO do that??? What are y’all smoking??? I have ended a few auctions early. In those, I’ve stated that, if there are no honorable bids before the last 12 or 24 hours of the auction, I reserve the right to do that as a means to protect the integrity of the ENTIRE auction process–not merely the bidders/snipers or sellers interests alone. Most of my auctions, however, are intended to run the full length, as I’ve studied the situations before listing the items. Obviously, MANY E-Bayers don’t give a SQUAT about ethics at all. And, to make matters worse, E-Bay does VERY LITTLE to stop this crap. This excersize is probably useless because of that. Still, for the sake of those who DO care, DO want to stay within the rules and laws, and DO want to understand the so-called “complexities” of this scenario, I have added these comments. I can VERY easily see the shill bids–NO-BRAINER there too. Read the E-Bay guides that have been posted on this subject for more information. They are VERY useful!
Shill bidding is shill bidding. It’s a fraud regardless of anyone’s thinly veiled attempt to justify it. Great discussion question, Susan (though I suspect most will react as I have), and yours is one of the truly great blogs. You always have terrific, timely info and provide a much-needed forum for ethical isues in the coin business.
Another thing–So many of the items that get that get shill bids OR sniped are things like “junk” silver coins, seriously overgraded coins, coins in spurious slabs with descriptions like “finest known,” and “errors” that are NOT errors–like the so-called “upside-down edge letters” on the presidential dollars. E-Bay ITSELF DOES NOTHING THAT I CAN SEE TO STOP THESE LISTINGS. I’ve reported so many with no action taken that I know FOR SURE they DON’T care about much but their profits. I said “much,” not “at all”. I won’t bother anymore because it is obviously up to us now–the buyers and sellers to be educated on the matter AND TO USE THAT KNOWLEDGE!!! E-Bay is FASTER THAN SUPERMAN to pull legitimate indian relic items when jealous competitors and the a-holes at the AACA report them as “grave goods”, etc. (when they are not!). So, in conclusion, the MAIN problem is the ethics of E-Bay staff. They simply are NOT doing their jobs and should be fired. They will also not respond to my offers of FREE assistance to quell the continuing onslaught of these internet pirates. Why, then, do we pay the crazy-high fees?????????????????????????????
OK Susan, Why don’t we also examine why so very many obviously oblivious buyers both online and off think that it’s “ethical” for big companies like PCGS, especially, to charge $40 or $50 bucks to certify a coin that is worth, say $2? They then KNOWINGLY perpetuate the myth that those coins are now “worth” far more because of some stupid plastic holder–many of which are so ridiculous that it boggles the mind. I’ve recently seen on E-Bay the 8-spike Jefferson dollars, for instance– certified by PCGS and nobody else, by the way–selling for $100 to a few hundred each, while equivalent, uncertified examples or those of NGC sell for $10 or not at all! Whhat about the ethics of PCGS. This is OBVIOUSLY fueling the shill-bidding problem as well, yet not much attention is given to it because dealers, mainly, push the PCGS slabs over all else. Both PCGS AND those unethical dealers are guilty of FRAUD by tricking people into believing that an MS-70 2005-P Lincoln cent actually exists. NO SUCH THING AS MS-70!!! That is the IDEAL–not a reality. NEVER BUY 70’s, thinking it’s “PERFECT”. They are NOT! Maybe GOD is MS-70. And, why would anyone in their right mind pay $50 for a PCGS-graded dollar that you can get at the bank for a dollar??? If you don’t know how to grade–LEARN–IT’S EASY!!!
I sell coins on ebay. I would never think about ever doing that. you should start your bidding at what the minimum you need to have for that coin. You may not get any bids, but that is the risk you take. I understand the process of starting the auction off a very low starting price in order to generate interests. If you do that then you should also be prepared to take a loss on the coin. I have taken losses by starting off low, as well as making great profit. It is a risk so be prepared to take one. But schill bidding is very unethical and if i found out a seller did this I would report them to Ebay as well as not to ever buy from them again. Is that worth losing you business over. Obviously this person feels it is. One day it will catch up with him.
Dave I think you need to go buy a small cabin in Idaho and start a militia. JEEZZ
I was going to comment, but it think Dave has covered EVERYTHING.
I’m one of those people that won’t bid on a reserve auction, so I understand that Beachcomber might not want to place a reserve on his items. But rather than shill bidding, he should just set the minimum bid at the minimum amount he is willing to sell. If his minimum price is fair he still attracts the bidders, and everyone wins. What he is doing with the shill bidding though… Forget eBay’s fees. He may feel that since he pays these he isn’t defrauding eBay, but he is certainly defrauding his bidders. Bottom line, this guy is a cheat! If he can’t accept the risk of selling for less than maximum profit, he shouldn’t be selling on eBay in the first place!
I ENJOY BUYING COINS ON EBAY, BUT NOW I AM AFRAID. HOW CAN YOU TELL WHEN SOMEONE IS HONEST?
I have yet to buy anything from E-Bay since their inception.
I’ll probably catch flack for my comments but that’s fine with me.
Untill they clean up their act, i’ll do my auction buying elsewhere.
I’ve bought a few items from other online auctions with no problems.
I somtimes feel that there are big cons going on at E-Bay. And no one is watching the store.
To much going on and not enough people to police their website.
As a bidder. The bidder is held to a contact. If you are not a serious bidder you don’t bid.
Is the seller held to the same? If they are, then it is defrauding the public.
Not E-Bay.
coiny
That should read — contract.
Sorry bouthat!
I have no objection to Beachcomber’s practice, since I know that his reserves are low, and will gladly be exceeded by anyone seriously interested in the coin and familiar with market prices. He should not have to “give the coin away” just because of lack of interest on a particular occasion! Of course he could make his reserves the starting bids, but people say that might seriously curtail bidding on the coins, I suppose because we all love to acquire coins very cheaply! In catalogue auctions of ancient coins, the conditions usually state that the owners of the coins may have entered hidden reserves. The starting price, for example, will be 60% of the estimate, but the owner is permitted to enter a reserve of up to 100% of estimate, but not more.
It will only work until ebay finds out, and they will kick him out, and so they should. You list things on ebay because you want to sell it at whatever cost. If you feel you’re going to take a lost on it, then hold onto it a little while longer.
He should be barred from using eBay and will be if ebay finds out. He is cheating the system because a starting bid of only 99 cents costs less in ebay fees than a starting bid of $9.99. So he is cheating ebay. plus it is unethical to use a shill bidder in any kind of auction. Any auction house with ethics will ban him if found out.
I think Beachcomber is a CON-ARTIST, he is a cheat, this is an example of out right theft. If he wants to be sure of a profit he should sell it for a set price through some other means. E-Bay has rules for a reason, and its not so some one can find a way around the rules. I have lost money several times on E-Bay, it sucks, but I have also made money to. I wonder if beachcomber cheated on test in school to get a passing grade. As to comment # 22 Curtis are you Beachcomber’s shill partner?
unethical.doesn t say much for his morals either
Beachcomber could just publish his reserve in his description, say $400; or he could suggest it is in the range of $375-$425. He also could set a BUY IT NOW price of $425, and simply state reserve is within 6% of the BIN price.
As a seller, I personally want everyone to know my reserve, so that everyone knows the minimum threshold it will take to buy my item. Last thing I want to do is relist the item and pay more fees!
Although I think it is crazy that the same coin that ended at $100 has also sold for .99cents. I strongly disagree with shill bidding. Not only is it plainly a lie and cheating a customer, it also cheats the other sellers that are being truthful in what they do.
I sell on Ebay, and have lost coins for .99cents, so I just raised the first bid. No reserve, and no losing at .99cents. I agree to that some auctions go beyond expectations, and there isn’t a negative shill bid for the customer, and it is again, plainly decieving.
Even at a cattle auction, you never know whether or not friends are bidding up each other’s twenty thousand dollar bulls. Bid what you think the bull is worth. If you don’t win the bid, go buy another bull.
Personally, I think it’s unethical. But it is not much different than Heritage or Teletrade letting consignors buy back their coins in lieu of a reserve. The one difference is that you must place your buy back bid before the auction starts. If ebay allowed sellers to place buy back bids prior to the start of an auction, would this be okay? It’s still the equivalent of a hidden reserve but at least the seller won’t bid you up.
One more thing, I think what Douglas West said above is important, only bid what a coin is worth to you and no higher.
Susan, thank you for calling to our attention this fraudulent tactic. Other writers have commented correctly of the illegalities of this particular practice. Were it the case of one eBay seller, I would not be overly concerned. Unfortunately, the practice has become relatively common on eBay. Because the seller is the paying customer on eBay, eBay does little or nothing to police the site.
Unfortunately, the greater harm here is upon the entire coin collecting industry. Shill bidding is only one of several tactics used to defraud coin collectors. Once burned, many buyers will not return whether it is eBay, a coin show, or live auction. This hurts honest sellers who are trying to get a fair market price for their coins.
Buyers expecting something for nothing so to speak tend to be the buyers that are least knowledgeable. There is a learning curve to coin collecting. If you are unwilling to take the time to learn, then you can expect to pay too much too often. All I am trying to say, if all buyers were educated about the coins they wish to buy, then they would quickly weed out the dishonest sellers.
The level of fraud on eBay, including shill bidding, has been increasing dramatically in the last 2 or 3 years. You can develop your own strategies to protect and defend yourself. Unfortunately, until things change, it will be the honest coin seller who will pay the greatest price for selling on eBay.
Correct me if I’m off base here but It seems to me #1 the schillsters and those who are trying to get something for nothing deserve each other! #2 If you are a serious and/or honest collector, you should know what you are buying is worth within a high and low margin! you bid what you are willing to. If it’s not high enough..YOU LOSE!Continue searching for what you want until you find it and GET it! You should be educated as to what you are doing, buy the books you need,study them, check around to see what the market is doing in your area of interest and KNOW your items current market value!Don’t get mad because you thought you were going to make a killing and didn’t! That puts you on the same level as the schillsters and there ilk! Stick to your own honest standards and don’t let yourself be drawn into the muck with those of questionable integrity. IF you do play their game once in a while and win…fine, BUT if you play their game and get your fingers burned..DON”T WHINE about it.. you should have known better. It’s human nature, there will always..ALWAYS! be cheats, liars, and underhanded people.Set your own standards, realize what the ground rules are, right or wrong and either steer clear of the ne’er do wells or be prepared for the results. There, I’ve rambled enough. Hope I’ve made some sense.
It is perfectly legal, by Federal trade commission rules, for the seller to bid on his own auction under this condition: THE AUCTION HOUSE MUST ANNOUNCE THAT THE SELLER IS ALSO A BIDDER. This might work on ebay if the seller established his highest bid, prior to the start of the auction, and could no longer bid above that level during the auction. Just a thought!
Is it unethical? Yea. Does it happen a lot? Probably. Do I care? Not particularly.
My goal on eBay is to get “risky” coins at a price cheap enough that there is no risk… if I win, at the price I’ve paid, I can live with it if the coin sorely dissapoints (and it often does, but I’m having a heck of a fun time trying to accurately predict that ahead of time, too much fun to care about my mistakes!).
In fact, I bid on far more auctions than I win. And what I bid on is a small small percentage of auctions I watch but never bid in because the prices goes up beyond what I’m willing to gamble. I always wait to bid anything until there is like 20 seconds left in the auction. Why? No sense in jacking the price up ahead of time. Let everyone put in their “real” price with 10 seconds left, and let the person who was willing to pay the most win. It’s like “blind” bidding or something. I’ve seen some coins go for pretty cheap that way, but I’ve also seen some coins go for WAY more than they were worth due to people getting nuts in the closing seconds with their “max bid”.
Is that a case of someone shil bidding? Maybe, maybe not. I look at the bidder lists to see how much feedback, what kind of feedback, and how many times before the buyer and seller have hooked up. I suspect that if it’s a shil setup, you’d see at least more than one transaction in the past. Sometimes you see some, sometimes you don’t see any.
First of all, I think it’s unrealistic to expect eBay to be certified experts regarding everything that anyone sells on their site. The very nature of the site is unlike a typical auction house where they don’t have the time or money to get experts for this stuff. It’s about economy of scale, building an easy tool like craigslist.
Buyers need to protect themselves. Sellers need to protect themselves. If you don’t want to pay to much, then… don’t bid that high. It’s simple. If you don’t want to sell too low, then set a starting bid where you want, or set a reserve. Simple.
The games people play on both sides are exactly that – part of the game. It’s kinda fun to play, actually
It is unethical to shill bid on EBAY. It is clearly stated in their policy. Do I think it is widespread? Absolutely. Before EBAY went to this system of hiding bidders’ names above $200, I found many examples of possible shill bidding (friends of seller or even same person or relatives). With hiding bidders names and many people have more than one account, you can bet that shill bidding has gotten more widespread.
I’ve actually been directly asked by a seller (after I won an item) to shill bid on his other auctions to “help him out”. I refused.
At estate auctions, they often have “ringers” in the audience to bid up an item to prevent the item from ending too low. This, too, is shill bidding, and the public may largely be unaware, and winds up paying more for an item. Yet this is OK?
I stay away from most auctions with reserves, because I’ve been top bidder on so many auctions like this and seller won’t sell it because hasn’t met reserve, even if I was close. Reserves are usually in my discomfort zone.
As a coin buyer, I do not like this practice because I want a deal. As a seller, he has every right to this practice. That is the sign of a true business man.
It seems to me that EBay has, in part, created this problem themselves by their fee schedule. Why does an auction with a $9.99 opening bid cost the seller more than an auction with a $0.99 opening bid? Why are the fees on an auction with a $90 reserve more than those on a auction with no reserve?
I hate to sound like a rabid libertarian, which I am not, but when markets are overregulated it creates incentives to scam the system.
I have never sold on EBay, so to some degree I am arguing blind here. Can anyone tell me what the differences in EBay fees are for 3 auctions, each closing at $100:
(1) without reserve and opening at $1
(2) with a $90 opening bid, no reserve
(3) with a $1 opening bid and $90 reserve
To me, the stuff he buys back is less of a problem that he sells: if I bid $50 and I don’t get the item because he has, essentially, a hidden reserve at $90, then so what?, because I would not have paid $90 anyway. If, however, I win the item for $45 when I would have won it for $40 without the shill bed, then I feel like I have been cheated out of $5 in a way I would not if he had simply placed a reserve at $45.
Sellers who withdraw auctions because of the lack of “serious” bids do so at their peril. I always bid with a sniper, as do many others, and it is not uncommon to see prices skyrocket in the last few seconds. This is allowed by EBay’s policy, and allows me to get items for the best prices without interrupting my day when an inconveniently timed auction is closing, without telegraphing my intentions, without tying up my limited budget for a week on a coin I may not win, and without getting into bidding wars.
(Before I get flamed for sniping, EBay could get rid of snipers if they wanted to simply by automatically extending auctions an extra 5 minutes when a bid is placed in the last 5 minutes. Yahoo used to do this. I wonder why they don’t? Perhaps a bandwith issue, but a topic for another day.)
Maybe a ebay rule violation, but hardly unethical. Most acution houses (Heritage, Teletrade, Sothebys) allow the consignor to place bids. And ebay did also, until they began charging a fee for having a reserve (and NO OTHER auction house does this..why should a seller be charged a FEE for setting a minimum price he will accept for HIS OWN MERCHANDISE. I think 99% of shilling is just to avoid a fee that should not be charged in the first place.
eBay is knowingly “aiding and abetting” fraudsters!
Do you think there is a problem with fraud on eBay? Do you think that eBay is doing anything to protect you from such fraud? Do you think that only sellers have problems with eBay? Well, actually, in what will undoubtedly be a counterproductive attempt to improve their “bottom line”, greedy eBay is now knowingly “aiding and abetting” shill-bidding fraudsters to prey on everyone buying on eBay.
For full details start at:
http://www.auctionbytes.com/forum/phpBB/viewtopic.php?p=6499794#6499794
For anyone interested, a detailed case study of a classic, blatant shill bidder on eBay, and a comment on eBay’s attitude thereto, at http://www.auctionbytes.com/forum/phpBB/viewtopic.php?t=24033