Monday, 24 April 2017

Be wary of "Second Chance Offers" on eBay

Wine cannot be advertised for sale on the English-language eBay sites without a liquor license (e.g. in the U.S.A., U.K., Australia, Canada, Ireland). However, it can be sold privately on many of the mainland European sites (eg. Austria, Belgium, France, Germany, Italy, Netherlands, Spain), except to minors. The wine can then easily be sent anywhere within the European Union. Indeed, many European wine shops use eBay as one of their online portals.

This is generally a Useful Thing for customers, because older vintage wines are widely available, usually much cheaper than in wine shops or at other auctions. However, the buyer must beware. In eBay terms, for older wines you are formally buying the bottle, not its contents, since there is no independent evaluation of the condition of the wine, as occurs for other auctions (and for which the buyer is charged a substantial premium).

I have purchased some very nice wines from 1945-2000 this way, although I have also had a few rather mediocre ones.

I have not yet been ripped off. Indeed, eBay prides itself on dealing with shonky activities by its members, although these activities still exist, and will presumably continue to do so. Last year, I encountered the following example, which I explain here for your education, because it involves a general issue with eBay.

A Milan-based seller became active selling old vintages of Barolo wine. This in itself is not unusual, but what attracted my attention was that the seller was offering free shipping, apparently worldwide. That is very unusual, because international shipping costs from Italy (even within the European Union) are often more expensive than the wine itself. How could the seller afford this? Buyer beware!

So, I decided to keep a curious eye on several of the wines. When I did so, an unusual bidding pattern appeared.

I have attached at the bottom of this post images of the final bidding results for all seven of the wines that I followed. Many more wines were offered by the seller, but I did not check their results. You will note that in all seven cases a previously unknown bidder (ie. one who had never bought anything on eBay before) put in a late bid. In six of the seven cases this newbie bidder won the auction.

This is a quite unbelievable coincidence, and I do not for one moment believe it. I occasionally see newbies bidding high prices on wine, but not seven different newbies bidding on all of the wines that I happen to be watching. If you are prepared to accept this, then I have this bridge in Brooklyn that I would like to sell you ...

Indeed, this looks exactly like shill bidding — defined as "bids on an item with the intent to artificially increase its price or desirability." Normally, the shill bidder does not win the item, but merely forces the other bidders into bidding unnecessarily high, preferably by forcing them to their maximum possible bid. This happened for one of the seven auctions shown below (the fourth one), in which an inexperienced bidder paid €151 for a wine that no-one else thought was worth more than €100. So, the shill bidder managed to extract an extra 50% of profit from the auction. This also happened for the third auction.

The other five auctions require a somewhat different explanation for their profitability.

Unfortunately, eBay has a mechanism that allows shill bidders to ostensibly "win" the item while still achieving their purpose of forcing another buyer to pay more for the item than they needed to. This is called a Second Chance Offer. After the auction, the highest losing bidder is contacted by the seller and told that they have another chance to buy the item, by paying their maximum bid amount.

So, the purpose of the shill bidding in this case is to reveal, to the seller, the buyer's maximum bid. Normally in an auction, the maximum bid for the highest bidder is not revealed to the seller, only the fact that they bid higher than everyone else. Of course, all of the losers' maximum bids are revealed.

Let's take one example from below, the sixth one. The highest bid is the shill bid (from bidder t***t), which was more than €114 — we do not know the actual bid, but one of the other examples (the fourth one) suggests that it was most likely €150. The second highest bid was €112.98 (from genuine bidder 7***8), and the third highest was €79 (from genuine bidder o***2). This means that, without the shill bid, the item would have sold for €79.50 to bidder 7***8. Instead, a Second Chance Offer is sent to 7***8 for sale of the item at €112.98, with a handsome extra profit of €33 to the seller (in collaboration with the shill bidder, who may or may not actually be a separate person).

Note that this approach to shill bidding does also deal with snipe bidders (ie. those who bid during the last few seconds of the auction — there are some examples below). Snipe bidding is sometimes considered to be immune to the actions of shill bidding (eg. How to snipe a winning bid), but it is not immune to the Second Chance Offer problem on eBay.

Caveat emptor. Be very wary of eBay's Second Chance Offers. If you want to play safe, ignore them.

Fontanafredda 1990

Marchesi di Barolo 1990

Pira e Figli Riserva 1990

Marengo Marenda Cerequio 1989

Michele Chiarlo 1988

Franco Fiorina 1955

Conterno Bricco Bussi Vigna Cicala 1990

Note: This post is modified from a post on my other blog: The Genealogical World of Phylogenetic Networks.