eBay has its share of controversy, ranging from its privacy policy (eBay typically turns over user information to law enforcement without a subpoena) to well-publicized seller fraud. eBay data shows that less than .01% of all transactions result in a confirmed case of fraud.

Fraud

There is one major fraud prevention mechanism: the eBay feedback system. After every transaction both the buyer and seller rate each other. They can give "positive", "negative", or a "neutral" score and leave a very short comment. So if a buyer has problems, he can leave a negative and a comment like "never received product".

Just as in normal retail, mistakes are made on both sides, so even legitimate sellers or buyers may have some negative feedback. Depending on the industry, a legitimate seller or buyer will have roughly 99% positive feedback rate unless they have a small total number of feedback, when only one negative feeback could cause their percentage to go drastically down.

The system can protect buyers. However, buyers must spend a little time learning the system and evaluating each seller.

Many new buyers seem to think they are buying directly from eBay--they are not. Other new buyers seem convinced they will be taken advantage of in any transaction. The latter will often become happy and content eBay users, while the former are often taken advantage of.

When fraud happens a buyer can file a dispute. Of course, all laws still apply and legal action may be possible. However, these methods are somewhat redundant with the feedback system.

One distinct advantage of the feedback system over traditional fraud prevention--i.e. enforcement of the law--is that trivial transactions can be conducted safely. A person in the US can buy a $5 collectable from someone in Russia. If there were a problem, the buyer would not have any practical recourse--she is probably not going to file a complaint in a Russian court for $5. But leaving a negative rating may help warn others that a seller is disreputable.

Another strength of the feedback system is that small, reputable sellers can quickly establish credibility. While in traditional retail credibility is linked to name recognition or with store locations, on eBay people will buy from a no-name business with no-assets or inventory as long as they have decent feedback.

One weakness of the feedback system is that small and large transactions carry the same weight in the summary. This can sometimes lead new buyers to be fooled. Experienced buyers know how to guard against this.

Other such weakness in the feedback system include: people are reluctant to leave feedback first for fear that the other party may leave negative without caring, new accounts that leave negative feedback and then create more new feedback, and people not leaving honest feedback for fear of negative retalitory feedback (including negative in retaliation for neutral).

The following are frauds committed by sellers:

  • Receiving payment and not shipping merchandise
  • Shipping items other than those described
  • Shipping faulty merchandise
  • Counterfeit merchandise
  • Selling stolen goods
  • Inflating total bid amounts by bidding against their own auction with a "shill" account

The following are frauds committed by buyers:

  • PayPal fraud (e.g. Filing a shipping claim for damaged merchandise and collecting the money from the shipping company, then filing a chargeback on paypal for damaged merchandise, then refusing to return goods. Buyer than has free goods and has income equal to the amount he spent on the item.)
  • Credit card fraud
  • Receiving merchandise and claiming otherwise
  • Returning items other than received
  • Preventing competitive bids with "bid shielding"

Other controversies

Other notable controversies involving eBay include:

  • On 28 May 2003 a US District Court federal jury found eBay guilty of patent infringement and ordered the company to pay US$35 million in damages. The jury found for plaintiff MercExchange, which had accused eBay in 2001 of infringing on three patents (two of which are used in eBay's "Buy It Now" feature for fixed-price sales) held by MercExchange founder Tom Woolston. The decision was appealed to the US Federal Court of Appeals and was upheld in part and rejected on others. As of Nov 2005, eBay has appealed to the US Supreme Court to effectively block injunctive relief to patent holder MercExchange. The Supreme Court has agreed to hear the case in 2006.
  • On 28 July 2003 eBay and its subsidiary PayPal agreed to pay a $10 million fine to settle allegations that they aided illegal offshore and online gambling. According to the settlement, PayPal between mid-2000 and November 2002 transmitted money in violation of various US federal and state online gambling laws. PayPal was also forced out of this market, which accounted for some 6% of its volume. These offenses occurred prior to eBay's purchase of PayPal.
  • On 17 December 2004 Avnish Bajaj, CEO of eBay's Indian subsidiary Baazee.com, was arrested after a video clip showing oral sex between two Indian students was sold online. The company denied knowing the content of what they were selling (because it is a venue, not a retailer) and removed the offensive material as soon as they became aware of it. The Indian government attempted to make the case that Bajaj broke a law under India's IT Act, that forbids "publishing, transmitting or causing to publish" obscene material, even though the actual material was never published on Baazee's servers. eBay strongly supported Baazee.
  • On 14 June 2005 eBay removed auction listings for originally free tickets to the Live 8 charity auction amid hundreds of complaints about such auctions. Following a statement from Bob Geldof that declared eBay a "cyber pimp", many of these auctions were bombarded with fake bids. Normally, selling of charity tickets is legal under UK law.
  • In 2005, the Australian NRL tried unsuccessfully to persuade eBay to prevent scalpers from selling grand final tickets online.

Controversial practices of users

  • Bid sniping is placing a high bid during the last few seconds of an auction such that no time remains for other users to counterbid. This practice is allowed on eBay. Many other auction sites, such as Yahoo! Auctions, offer an option which extends the auction by some minutes when a last-minute bid is placed, in order to prevent sniping. eBay's "proxy bidding" feature allows the buyer to specify the maximum they are willing to pay for an item regardless of "snipes". [18]
  • Shill bidding is the deliberate use of secondary registrations, aliases, family members, friends, or associates to artificially drive up the bid price of an item. (This is also known as "bid padding".) Shill bidding is not allowed on eBay. [19] Furthermore, shill bidding is a crime in many jurisdictions, and can be prosecuted under United States wire fraud laws. [20]
  • Some users try to sell something which, on first glance, appears to be an expensive item for cheap (game console boxes are quite popular), and state clearly in the description that they are paying for an item which is not the one implied. This is not allowed by eBay.
  • Conversely, sometimes very cheap items, like envelopes, are sold for high prices because they come with free airline vouchers or concert tickets, in order not to violate the terms on these items.
  • Some users sell items for extremely low prices (usually using the Buy It Now feature) and then make up for it by overcharging on shipping. Since eBay charges their fees based on final sales price and not shipping, this allows sellers to reduce the amount they pay eBay in fees and for buyers to avoid importing fees and taxes into their country. This is called "fee avoidance" and is not allowed by eBay; such auctions are cancelled when they are reported. Another concern with "fee avoidance" is that most sellers will not refund shipping so if a $1 item with a $50 shipping fee turns up faulty, the buyer is only eligible to a refund for the $1.

This guide is licensed under the GNU Free Documentation License. It uses material from the Wikipedia.

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