Auctions

With its ability to connect potential buyers and sellers from anywhere in the world, the INTERNET has become an increasingly important player in auctions. The first online auctions appeared on the Internet in 1995, and according to the FEDERAL TRADE COMMISSION (FTC) these auctions have become "perhaps the hottest phenomenon on the Web." Large organizations can participate in online auctions but so can individual sellers and small businesses.

The rules for online auctions are fairly straightforward. For a typical person-to-person site, the sellers will open an account and are assigned an on-screen name. They must pay a fee whenever they conduct an auction. The seller can set a time limit on the bidding, as well as a minimum price. If a buyer puts in a bid that the seller accepts, they complete the transaction, often via email, arranging for payment and delivery of the goods. Many sites allow buyers to pay by credit card (which protects the buyer in case merchandise is not delivered); some individual sellers require payment by cashier's check or money order (to protect against bounced checks). Some buyers and sellers conduct their money transactions through online payment or online escrow services, which serve as a secure site for sending and receiving payment information. These payment arrangements are more a matter of caution than lack of trust. In fact, auction sites usually offer some form of insurance or guarantees to ensure that merchandise is both paid for and delivered as agreed by the buyer and the seller.

Although online auctions are generally safe for both buyers and sellers, auction fraud does occur. Buyers who report online auction fraud to the FTC commonly complain that merchandise never arrives or that it arrives late or that the merchandise that does arrive is not what was advertised. There are other more problematic types of fraud. In "bid siphoning," a bidder is lured off a legitimate auction site by a phony seller who promises to sell the same item as that being auctioned for a lower price. The buyer sends money to this "seller," who offers no guarantees—and usually no merchandise. Fraudulent online sellers, like their "live" counterparts, may also employ puffers to bid up the price of an item, or they may engage in "bid shielding," in which extremely high bids are submitted and then retracted so that a preferred bidder can put in a lower bid and obtain the item.

Both buyers and sellers who engage in online auctions are advised to take common-sense precautions. First, people should deal with legitimate auction sites whose reputations are established. They should determine that terms of bidding, payment, and delivery are spelled out ahead of time. Also it is a good idea to check out online payment or escrow services, particularly if the buyer or seller insists on using a particular one whose reputation is not known. Buyers and sellers can contact their local branch of the Better Business Bureau to find out whether complaints have been lodged against a particular service or site.