We wondered if there has been any research on shill bidding. There’s been lots. In fact, search the Internet for “shill bidding” and you’re likely to find 100’s of discussion forums, blogs, articles, and research on the topic.
In fact, one such discussion forum noted that a longtime auctioneer said, “The only bid you have to get right is the last one.” This was in response to a poster noting he had been run with shill bids in an auction with bulls he was trying to buy.
It’s talked about a lot with little resolution. Here’s one such research paper from 2003 by Professor Robert J. Kauffman and Assistant Professor Charles A. Wood which discusses detecting, predicting and preventing [online] shill bidding: http://misrc.umn.edu/workingpapers/fullpapers/2003/0304_022003.pdf.
Here’s my take: Until there is more policing of this type of illegal activity, there will be little done to temper or eliminate shill bidding. It’s far too easy to shill bid online, and way too many auctioneers shill bid while bid calling.
Shill bidding is falsely advocating by placing fictitious bids in an auction. In an online auction it is almost impossible to prevent — especially if the bidder has left a maximum absentee bid and allows the auctioneer/staff or software to bid for him.
Leaving a maximum $10,000 online bid too often results in a purchase price of exactly $10,000. If there aren’t other legitimate (genuine) bids to get the bid to $10,000, the auctioneer places fictitious bids up to a number just shy of $10,000 (maybe $9,950?)
Live auctions also involve shill bidders — more often by the auctioneer himself or herself. If a bidder indicates interest in an item, and bids $5,000 the auctioneer shill bids by representing someone bid $6,000 (when nobody really did) and asks this bidder to bid $7,000.
In essence, this bidder at $5,000 is bidding against himself — raising his own bid to $7,000 unnecessarily though nothing less than misrepresentation and fraud. The remedies include voiding the sale altogether or taking the property at the last good faith bid … and avoiding this auctioneer’s auctions in the future.
I have to say that I learned many lessons early in my career. I began in the auction business working for another very experienced (and very busy) auctioneer in Columbus, Ohio. We together worked about 50-75 auctions a year for over 8 years.
Of the many invaluable memories I keep close, these include that maximizing absentee bids and shill bidding do not endear bidders to subsequent auctions. Want bidders to return and buy from you again? Treat them with honesty, integrity and transparency.
Incidentally, auctions are to be fun, fast and transparent? I’ve written about that: https://mikebrandlyauctioneer.wordpress.com/2018/06/04/auctions-fast-fun-transparent/. Having “fun” and everyone on the same “playing field” doesn’t mean we as auctioneers take advantage of bidders.
In light of writing about this yet again, here is our treatise on when anyone including the auctioneer (online and/or live) can — and can’t — bid legally and ethically: https://mikebrandlyauctioneer.wordpress.com/2019/10/07/bids-that-can-cant-be-placed-at-auction/.
Mike Brandly, Auctioneer, CAI, CAS, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, RES Auction Services and Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College, Executive Director of The Ohio Auction School, an Instructor at the National Auctioneers Association’s Designation Academy and America’s Auction Academy. He is faculty at the Certified Auctioneers Institute held at Indiana University and is approved by the The Supreme Court of Ohio for attorney education.