Auction Fever

Kiplinger's Personal Finance Magazine, May, 2000 by Elizabeth Razzi

Newcomers to eBay are often shocked when, after days of being the top bidder (or even the only bidder), someone else swoops in during the final seconds of the auction and wins with a bid that's only a few dollars higher. This sneaky ploy is called sniping, and the best way to fight back is to do it better than the other guy. A Web site invented just for sniping on eBay, Esnipe.com, promises to store your bidding commands until the last few seconds of an auction and use its high-speed Internet connection to swoop in for the win.

Not all auction sites are as prone to such dogfights as eBay. On Amazon .com, for example, the site holds off the final gavel until ten minutes have passed without a bid. That makes the deal more like a live auction, where the last bidder standing wins.

Spoiling the party

UNFORTUNATELY, as Internet auctions have boomed, so has fraud. The Federal Trade Commission says the number of complaints about auctions ballooned from 107 in 1997 to 10,700 in 1999.

Officials at eBay acknowledge the problem. But spokesman Kevin Pursglove says that fraud amounts to only three-tenths of 1% of all transactions. While eBay is trying hard to maintain its arm's-length distance from the person-to-person deals it facilitates, it has started to forward copies of all consumer complaints to the FTC.

It has also added some buyer protections, including free insurance of up to $200 per deal (with a $25 deductible), and linked to an escrow service, iescrow.com. But you must get the seller to agree to use the escrow service before you bid.

Most sellers on eBay do not accept credit cards. But that may change. The site is encouraging sellers to use its new Billpoint service to accept credit card payments. Amazon.com offers a low-fee service for credit card acceptances; buyers who use it boost Amazon's $ 250 guarantee to $1,000.

Beyond auctions

THE NAGGING little problem about auctions is that, while they are unbeatable for bringing far-flung buyers into the marketplace, competition among the buyers drives up prices. "A lot of consumers get caught up in auctions and are bidding up prices higher than retail," notes Mike May of Jupiter Communications. "Someone is always willing to pay more."

For commodities with broad appeal, new "variable pricing" sites turn the auction format on its head. Mercata .com (see "Online Shopper," on page 126) offers lower prices when large numbers of people buy one of its "PowerBuys"--today's version of Kmart's old blue-light specials. "Consumers can create their own economies of scale," says May.

Auctions, reverse auctions and other forms of variable pricing are expected to grow in popularity as businesses figure out more ways to use what so far has been mostly a person-to-person hobby. By next year, according to Forrester Research, business-to-consumer auctions will dominate. Watch for auction sites to offer more assurance against fraud, and for more bargainbin offerings as businesses learn to auction off leftovers directly to consumers. K --Reporter: JUSTIN WISER