Shill bidding - just don't!

Porridge is undermined if there is too much salt in it.

The game of cricket is undermined if you bowl underarm.

Chuck Norris’s career was undermined when he made Delta Force 2 and shill bidders suck the oxygen out of an auction website.

Shill bidding is where sellers use memberships of people they know, or fake memberships they have created, to put false bids on auctions in an attempt to bid up the price of goods they are selling.

A genuine auction requires you to set a reserve – the minimum price you are willing to sell the goods for. Shill bidders mislead you about what that reserve is by gaming the auction over the stated reserve price, up to their intended reserve.

It should go without saying that shill bidding is against Trade Me’s terms and conditions – it is also illegal, potentially breaching both the Fair Trading Act and the dishonest use of a computer provisions of the Crimes Act.

On Trade Me, the majority of shill bidders are detected by our security tools – and in reality, most of the shill bidding we see in the site is from one off traders, who may not realise that what they see as harmless gaming of the system, is actually a big deal.

Unfortunately for all of us, there have been traders who have based their entire business model on misleading buyers through shill bidding.

In July the Trust & Safety team kicked The Auto Co Ltd, an Auckland based motor vehicle trader, off the site for allegedly engaging in concerted shill bidding on $1 reserve auctions over the preceeding 12 months.

As part of Trade Me's investigation, we identified those auctions where shill bidding had allegedly occurred and where that shill bidding resulted in the final selling price for the vehicle being distorted.

Trade Me secured refunds for members affected by this conduct from the trader and, to date, has paid out close to $70,000 to victims.

We have also referred the matter to the Commerce Commission who are currently investigating the company.

The Commerce Commission enforces the Fair Trading Act and has issued a number of warnings over the past few years to professional traders caught shill bidding on Trade Me.

There has also been a handy prosecution which resulted in a $20K fine for the member.

20K.

Think about that.

The Commerce Commission’s enforcement action has focussed almost exclusively on motor vehicle dealers to date, but there is no reason why other professional traders selling other types of products could not be warned or prosecuted.

Apart from being illegal, shill bidding is dishonest and uncool. It seeks to manipulate the auction process and results in consumers paying more than the market value for goods.

If you don’t want your goods to sell for less than a certain level, set your reserve at that level – simple as that.

You can help our Trade Me community. If you see or suspect an auction you have been involved in has been subject to shill bidding, click Community Watch and let us know your concerns.

If you know that a member is bidding on their brother's or flatmates’ listing, tell us!

We will look into it and if there’s a problem we will take action to stop it. This could involve warning members, banning memberships or referring members to the Commerce Commission or Police for investigation.

We also run internal checks daily that we can use to quickly identify this behavour so don't think we aren't watching.

Potential shill bidders should ask themselves this question:

Is the few hundred extra dollars you might make shill bidding on an auction worth the problems that would result from being banned from Trade Me and facing a Commerce Commission investigation?

Update: Autoco has pleaded guilty and fined $42,000.