Online sellers using shill bids to outsmart competition face market crackdown.
Sellers in online auctions compete by setting reserve prices or using shill bidding. A study found that in a two-seller scenario, both sellers can make more profit by setting reserve prices above their production costs. Shill bidding, while profitable for sellers, creates market inefficiencies. However, when auction fees are based on the difference between closing and reserve prices, these inefficiencies can be reduced.