business terms-of-service
Is it legal for an auctioneer to know max bids and place bids themselves to increase the price?
<p>There is an online auction that has the option to place a max bid (an automated process for the bidder to bid up to a specified value). Also, in the terms &amp; agreement for the auction, it is disclosed to the buyers that the auctioneer can place bids on behalf of the seller. If the auctioneer also knows the max bid (of the real potential buyer, let's called that person BidderA for clarification) and places shill bids (fake bids) to increase the price all the way to the BidderA's max bid, is that illegal?</p>

<p>The buyers and sellers do not know that the auctioneer can see max bids as well.</p>

<p><strong>Edit:</strong></p>

<p>An example for clarification: ItemA's highest bid is $100 and has a minimum of $5 increases. BidderA places a bid on ItemA for $105 but they also are willing to bid up $200 so they place a max bid $200.</p>

<p>The way the max bid should should work is if BidderB places a bid of $150, the auction site will automatically place a $155 bid for BidderA and BidderA is still the highest bidder. If BidderB placed a $250 bid instead, they would become the highest bidder.</p>

<p>Instead, what is happening is that the auctioneer (the company running the auction) sees that BidderA placed a max bid of $200 and places a bid for $195 (for what they claim is on behalf of the seller). This then triggers BidderA to automatically place a bid $200. It basically ensures that whenever someone enters a max bid, they will pay that amount if they win the item regardless of whether or not someone else makes a bid.</p>

<blockquote>
  <p>auctioneer can place bids on behalf of the seller</p>
</blockquote>

<p>The UCC contemplates seller-bids. <a href="https://www.law.cornell.edu/ucc/2/2-328" rel="nofollow">https://www.law.cornell.edu/ucc/2/2-328</a> see paragraph 4. </p>

<p>There's no law about what you describe, but it's certainly pretty dumb. Of course the auctioneer knows the max bids, it's the auctioneers' job to know. Who else would keep track of the information?</p>

<p>As for the actual process being described, I suggest that you might be misunderstanding. It seems more likely that the auctioneer is not the decision-maker, rather the auctioneer places bids at the direction on the seller. In other words, <em>on behalf of</em> means <em>at the direction of</em>. </p>

<p>Functionally, the seller placing a shill bid is the same result as if the seller increased the reserve during the course of the auction.</p>

<p>But that probably isn't what is happening.  More likely, you and another bidder have both set max bids with automatic incremental answer bids. When this happens, the bid price will almost immediately shoot up to the lower bidder's max.</p>

<p>I think this is a really good question! (+1)</p>

<p>The answer comes down to the ethics and policies of the auctioneer and how they want to position and operate in the marketplace.</p>

<p>Prima facie, there is no prohibitive law per se. Seems like they disclosed what they are doing. The questions any user of their services who are buyers should ask are: </p>

<ul>
<li>What reason would I have to <em>ever</em> disclose to the auctioneer my maximum bid?</li>
<li>If I do disclose my max bid, why <em>wouldn't</em> they use that against me?</li>
</ul>

<p>I say, and my read of your question suggests, the auctioneer damn well is using every penny of that max bid disclosure against the buyers and to the advantage of the seller. In fact, the auctioneer is an agent of the seller most likely and, therefore, has a potential <strong><em>obligation</em></strong> to use that information to the fullest advantage of the seller.</p>

<p>Looks like they are telling you (and the marketplace) exactly what they are doing and challenging all comers to do something about it. Unethical? No. From the perspective of <strong><em>agency</em></strong> it might be more ethical than not doing it.</p>

<p>The way you describe it, the auction site is acting badly unethical, and nobody knowing about that practice would touch the site. If they act this way and don't state it clearly, I would assume that it is actually fraud. </p>

<p>The same effect could be achieved quite openly: Instead of calling something a "maximum bid" call it the "bid" and when someone bids $200, change the price to $200, for everyone to see. </p>

<p>On eBay, for example, the "maximum bid" feature is supposed to simulate a bidder at a real auction, who has just made a moderate bid; in his mind he may or may not have a higher number that he is willing to bid. But to detect that higher number, someone else must bid himself, and run the risk of winning the auction (if they only wanted to drive the price up but not paying). </p>

<p>In a physical auction, bidders who are not present may deposit bids with a person they trust, and that would actually be the auctioneer. The auctioneer will then do the actions that the bidder would do if he were present. So if I deposited a maximum bid of $300 with the auctioneer, the highest bid is $150 and nobody seems to be bidding, the auctioneer will bid $155 on my behalf, and the auction continues. The auctioneer <em>could</em> invent a $295 bid and than bid $300 on my behalf, but if word gets out, he won't get deposited bids anymore. </p>

<p>The most likely explanation for this is that $100 (and possibly $200) is less than the reserve price.  Both on-line and real-life auctions usually start the bidding some way below the reserve.  In real life, I have seen an auctioneer bid against a bidder on the floor - sometimes they are bidding on behalf of a bidder who has left a maximum bid with the auctioneer, but usually it is because the bid is below the reserve (the auctioneer will stop bidding when the reserve is met).</p>
