Despite Risks, Online Auctions Thrive

Despite mounting evidence that Web auctions provide a fertile ground for fraud, sellers continue to open new auctions and bidders continue to ante up, according to a study released Monday by Greenfield Online.

In a survey of over 4,000 Web users, the research firm found that the level of participation in online auctions — such as those found on eBay, Yahoo! and Amazon.com — in the second quarter of this year is on par with first quarter statistics.

Happy and Motivated

The study also found that auction participation was slightly ahead of usage in the year-earlier quarter. Approximately 80 percent of participants said that they have purchased an item from an online auction and nearly a third have auctioned goods.

The July study, the latest installment of the researcher’s Digital Consumer Shopping Index, said that overall satisfaction is strong among bidders and sellers alike.

For bidders, the ability to find good deals, to set a cap on the highest price they are willing to pay, and to have fun are the main motivators. Sellers, on the other hand, are primarily using online auctions to make a profit or to get rid of goods they no longer want.

Something for Everyone

Considered glorified garage sales by some observers, Internet auction sites are immensely popular. For instance, eBay, which is often credited with spearheading the shift toward direct buyer marketplaces, racked up 10 million unique visitors in July, according to Nielsen//Net Ratings.

Bolstering the findings of Greenfield Online’s survey, Jupiter Communications (now Jupiter Research) recently predicted that consumer-to-consumer online auction sales will spike from $3 billion (US$) in 1999 to $15.1 billion in 2004.

Going, Going, Gone

Given the dollars involved, it should come as little surprise that the Net auction industry has created its own breed of e-con artist looking to capitalize on the millions of transactions that occur each day.

Due largely to these tech-wise hucksters, online auctions have sparked the largest number of complaints to a new U.S. government site that tracks fraud on the Internet. The Internet Fraud Complaint Center said that online auctions accounted for 48.8 percent of complaints, while non-delivery of goods purchased online was the basis for 19.2 percent of complaints.

The center, jointly run by the U.S. Federal Bureau of Investigation (FBI) and the Justice Department’s National White Collar Crime Center, has received almost 13,000 complaints since the launch of its site on May 8th through mid-September.

In addition, the Federal Trade Commission (FTC) said the number of complaints it has received about online auctions exploded to nearly 11,000 in 1999 from 107 in 1997.

Watchdogs and Lawsuits

Private advocacy groups have also seen a spike in complaints about online auctions. Last year, the Washington, D.C.-based National Consumers League (NCL) received more than 9,000 complaints from Net auction buyers who sent in cash and never received what they bought — or received fake or broken items.

The NCL figures reveal a whopping 78 percent surge in Net auction complaints over the previous year.

To prevent a possible erosion in consumer confidence, the FTC launched Project Safebid in February. The initiative involves training for law enforcement officials across the U.S. to track and prosecute Internet con artists.

In addition, the FTC, Justice Department, U.S. Postal Inspection Service and other federal agencies have filed dozens of law enforcement actions concerning online auction fraud, with more suits likely.

Preventive Measures

To avoid being taken in by such scams, the FTC advises consumers who buy items through Internet auctions to identify the seller and check the seller’s ratings. The FTC also advises that auction buyers be sure to understand what they are bidding on, its relative value, and all terms and conditions of the sale, including the seller’s return policies and who pays for shipping.

Moreover, such buyers should establish their top price and stick to it, according to the FTC.

The FTC also said that buyers should evaluate their payment options. If possible, Net auction buyers should use a credit card because it offers the most protection if there is a problem.

In addition, the FTC advises that online auction buyers should consider using an escrow service.