Irregular Bidding from Opportunism: an Exploration of Shilling in Online Auctions

In electronic markets, seller information is often obscured or unavailable, which current theories of reputation and opportunism contend will motivate opportunistic behavior. We investigate how reputable and opportunistic behaviors are motivated in online auctions. This exploratory study examines irregular bidding, which occurs when a bidder makes a bid for an item in an auction, yet that bidder could have won with the same bid or a lower bid in a different auction that is selling an identical item at the same time. Two possible motivations for irregular bidding are (1) shill bidding, where a seller secretly bids on his own item irrespective of other identical items that are available to opportunistically increase revenues, and (2) seller preference, where sellers build good reputations and buyers are willing to pay price premiums for these sellers’ products. Rare coin auction data were collected in 2001, with 5,031 bids in 1,313 auctions from 2,015 bidders and 480 sellers, and in 2005-2006, with 25,029 bids in 1,802 auctions from 5,850 bidders and 342 sellers. Our bidder-level and seller-level analysis suggest that that irregular bidding is primarily driven by reserve price shilling, a type of shilling that occurs when sellers shill to avoid auction house fees.