Abstract

An increasing number of reports of online auction fraud are of growing concern to auction operators and participants. In this research, we discuss reserve price shilling, where a bidder shills in order to avoid paying auction house fees, rather than to drive up the price of the final bid. We examine the effect that premium bids, since they are linked with reserve price shill bids, have upon the final selling price. We use 10,260 eBay auctions during April 2001, and identify 1,389 auctions involving 493 sellers and 1,314 involved in concurrent auctions that involving the exact same item. We find that premium bidding occurs 23 % of the time, in 263 of the 1,389 auctions. Using a theoretical perspective involving valuation signals, we show that other bidders may view high bids as signals that an item is worth more. Thus, they may be willing to pay more for the item than items that do not receive premium bids. The implications are disturbing in that sellers may be more motivated to enter a shill bid in order to drive up the final price in an online auction. We also examine and report on alternative hypotheses involving winner’s curse and the possibility of reserve price shill bids. Our results are developed in the context of a weighted least

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