Shill bidding is a technique which is used to artificially inflate the cost of an item being sold at auction so that the seller receives a bigger profit. In some regions of the world, this practice is illegal, and it may be prosecuted as fraud or deception if an investigator can prove that shill bidding occurred. This practice is also extremely common on online auction sites, many of which claim to aggressively pursue accusations of shill bidding, and penalize users who are involved in such activities.
When shill bidding is used, the seller of an item gets an associate to participate in the auction, placing bids and talking up the item to people present for the auction. The associate times his or her bids carefully to increase interest in the item and to drive the price up as much as possible. If for some reason the associate wins, the seller covers the cost of the item and resells it at a later date.
Auctioneers can sometimes detect shill bidders, and at prominent auctions, bidders may be asked go go through a prequalification process to confirm that they are indeed valid bidders, and they are not associated with any of the people who are selling items in the auction. Even with this precaution, however, it is possible for shills to get into an auction, as high cost items are accompanied with high stakes, and sellers and shills may be willing to go to great lengths to achieve their goals.
Shill bidding relies on the use of an associate who has special information about the item and is linked with the seller, without the knowledge of other people in the auction. On the Internet, it is very easy to use shill bidding to manipulate an auction, because buyers do not see each other. In fact, some sellers even register new accounts under false names so that they can bid on their own items, rather than using a shill. Due to concerns about shill bidding, some sites ban friends, coworkers, roommates, and family members from bidding on each other's auctions.
The term “shill bidding” is also used to describe a situation in which people collude to keep the price of an item low, thereby defrauding the seller. This technique involves a high bid placed to discourage other bidders and withdrawn at the last minute, allowing the accomplice to jump in with a low bid to buy the item. Novice sellers on auction sites often fall victim to this tactic, which is why it is important to set a fair price as a minimum as a seller, to avoid getting scammed and being forced to give up an item for a fraction of its cost.