Today, a New York court ordered eight eBay (NASDAQ:EBAY) sellers to pay nearly $90,000 in restitution and fines for the crime of phony bidding. In the three cases, the court found the individuals guilty of making phony bids on cars and paintings they were selling to increase the prices.
According to the Associated Press, the state hasn't conducted a widespread investigation to determine just how prevalent such shenanigans might be. Of course, should such a study be conducted and come up with a negative result, one can imagine that it could deflate the burgeoning market until the industry finds ways to provide safeguards against such conduct, which would be no easy task.
The fact that some sellers might be dirty dealers isn't eBay's fault, and one might hope that many users recognize that any auction includes the "buyer beware" caveat. However, despite this fact, the company does rely on the perception that its service is, for the most part, safe to use.
Meanwhile, maybe it's not the greatest time for a smattering of negative eBay publicity. It wasn't that long ago that some eBay users experienced some glitches with its PayPal service; eBay later took some pains to at least appear to apologize.
Indeed, eBay addresses the reality of such risks in its "Risk Factors" section of its Form 10-K and sums it up thus: "Negative publicity generated as a result of fraudulent or deceptive conduct by users of our eBay and PayPal services is increasing, and such publicity could damage our reputation, reduce our ability to attract new users and diminish the value of our brand name."
While eBay does have some policies in place to protect buyers, certain situations are out of its hands, such as this one. (For more details, really, check out the "Risk Factors" in its 10-K. It's always interesting reading.)
There are upstarts as well as established rivals such as Overstock.com (NASDAQ:OSTK) that would love to get their hands on some disenfranchised eBay users, though the truth is, any company that deals with online auctions would have to absorb the risk that some users just aren't honest.
So there's probably no need to push the panic button here, given the nature of the online auction beast. eBay has enjoyed unrivaled success, and one would imagine that most users understand that there's a bit of risk involved and that if they're not comfortable with a bid, they should bow out. Given its popularity and momentum, it would take a lot of heat to hurt eBay.
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Alyce Lomax does not own shares of any of the companies mentioned. She's always thought Risk Factors made good reading.
