Popular online auction site eBay recently announced an expansion of their SMI (Safeguarding Member ID) system into all of their US-based live auction listings. The SMI system essentially hides bidder screen names from everyone but the seller. At the moment, if one logs onto eBay and looks at the list of bidders for any given US auction, he or she would immediately notice that although eBay displays the bid prices for the item, it does not show the actual screen names of those bidders. EBay cites a need to thwart fraudulent Second Chance Offers as the reason for this new policy. In the past, scammers have often browsed the list of the screen names of the under-bidders of an auction near the closing time and have been able to contact and send those under-bidders fake offers to purchase similar goods for a reduced price. This is now impossible because the bidder identities are kept secret, and scammers are no longer able to contact those bidders directly and issue fraudulent Second Chance Offer slips.

However, this recent policy change elicits worries from many longtime users. One major problem that SMI is likely to create is an increased amount of shill bidding. Shill bidding is a scenario in which the seller in an auction uses additional accounts to bid up his or her own item in order to incite a bidding war that will ultimately raise the final price. Because SMI hides the identities of all bidders, it is very hard for the legitimate bidders to tell if the seller is using any additional accounts in the aforementioned manner. Now, one would think that shill bidding should not affect final prices in eBay auctions, because in such second-price auctions, the dominant strategy is to never bid above private valuations. However, humans are not always rational bidders, and in the real world, people do tend to overbid and call out prices that surpass their private valuations, many times due to greed, the competitive spirit, or other irrational emotions. There have even been many cases in which people have bid over $100 in an auction for a $100 dollar bill (up to $465 in some cases!). But nevertheless, because shill bidding artificially drives up the final prices of items, many users are demanding that eBay instead eliminates the use of Second Chance Offers altogether, calling SMI an “overreaction to a small problem.”

Referenced Articles:

http://blog.auctionbytes.com/cgi-bin/blog/blog.pl?/pl/2008/3/1204572683.html

http://collectdolls.about.com/od/auctions/a/ebayhiddenbid.htm

http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B0F186388%2DDEDF%2D467B%2D8AB3%2DA13FF669FB87%7D