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FAQ: Bidding basics

Important things to know about online auctions before you get started.

3 min read
Along with online brokerages, auctions are the hottest thing on the Net just now. There are several different kinds, and the rules change from site to site. Here are a few tips to get you started.

Are all online auctions the same?
No. Auctions come in a variety of formats, from person-to-person auctions [similar to classified ads] to merchant auctions, in which businesses put merchandise up for auction for a limited amount of time. There are also business-to-business auctions, which are not open to the general public, and a name-your-own-price model.

There are also different auction formats. In a Dutch auction, The high price of auctions for example, a seller auctions multiple quantities of the same item and sets a minimum bid price. Buyers then specify how many of the item they want and the price they're willing to pay [at or above the minimum]. When the auction closes, the goods are sold to the highest bidders [in terms of quantity and price] at the lowest successful price.

In a reserve auction, the seller sets a reserve [minimum] price he or she is willing to accept for an item, and is not obligated to sell the good to the highest bidder unless the reserve has been met.

Can anyone participate in auctions?
On most auction sites, registration is only open to those 18 and older. A credit card is not required for registration, although eBay asks that those who use an anonymous e-mail provider [that doesn't verify user identities] such as Hotmail or Yahoo provide a valid Visa or MasterCard. Other auction sites accept new registrants with anonymous email addresses.

Are there any items that may not be auctioned?
Online auction sites do not allow the sale of certain goods and services, such as stolen goods, illicit drugs, and pornography. Live animals and food products are usually off limits as well. Goods that infringe on copyrights, such as pirated software and bootleg copies of tapes, CDs, videotapes, and PC games, are also prohibited. Beyond that, it varies. eBay recently banned the auction of firearms because of difficulty sellers were encountering in verifying buyer eligibility.

How do auction sites make money?
Auction sites make money either by selling merchandise directly to consumers, as in the case of merchant auctions, or by charging a listing fee and a transaction fee, as in the case of person-to-person auctions. Yahoo Auctions doesn't charge listing fees or transactions fees.

What are the risks of participating in person-to-person auctions?
The risks are no greater than buying an item at a flea market or through the classified ads in your local newspaper. Other than not receiving an item you've paid for or payment for an item you've sold, both examples of fraud that are covered by existing laws, there are various types of unethical behavior that can occur in online auctions. That includes shilling, where a seller uses an alternate identity or a third person to inflate the bidding on his or her item. Bid shielding occurs when a buyer offers a high price for an item to discourage other bidders, then withdraws the high bid near the end of the auction in order to get it at a lower price. The penalties for engaging in shilling or bid shielding on an auction site vary, but can lead to suspension from a site.

Do person-to-person auction sites guarantee the transactions that occur on their sites?
No, nor do they get involved in resolving disputes between members other than providing general rules to follow. If a fraudulent transaction is reported to a site, the members involved are referred to the proper law enforcement agency.

To avoid a fraudulent transaction, most sites recommend dealing only with those members who have built up good ratings on the site, using an escrow service and verifying your trading partner's identity before completing the transaction.  

Go to: The high price of auctions