Whether you're looking for a collectible or thinking about selling an antique, an Internet auction may be just the place for you. Since they began in 1995, Internet auctions have become perhaps the hottest phenomenon on the Web. They offer buyers a "virtual" flea market from which to choose an endless array of merchandise from around the world, and they provide sellers a worldwide storefront from which to market their goods. But online auctions can be risky business, according to the Federal Trade Commission (FTC), a federal agency that works to prevent fraud, deception and unfair practices in the marketplace. Among the thousands of consumer fraud complaints the FTC receives yearly, those dealing with online auction fraud consistently rank at or near the top of the list.

The complaints generally deal with late shipments, no shipments, or shipments of products that aren't the same quality as advertised; bogus online payment or escrow services; and fraudulent dealers who lure bidders from legitimate auction sites with seemingly better deals. Most complaints involve sellers, but in some cases, the buyers are the focus. Whether you're a buyer or a seller, understanding how Internet auctions work can help you avoid these problems.

Auction Rules

Internet auctions are online bazaars. Some are the scenes of business-to-person activity, where a Web site operator physically controls the merchandise for sale and accepts payment for the goods. But most specialize in person-to-person activity where individual sellers or small businesses auction their items directly to consumers. In these auctions, the seller - not the site - has the merchandise. The person-to-person sites require sellers to register and obtain a "user account name" (or "screen name") before they can place items for bid. Sellers also must agree to pay a fee every time they conduct an auction. Many sellers set a time limit on bidding and, in some cases, a "reserve price" - the lowest price they will accept for an item. When the bidding closes at the scheduled time, the highest bidder "wins." If no one bids at or above the reserve price, the auction closes without a "winner." At the end of a successful person-to-person auction, the buyer and seller communicate - usually by email - to arrange for payment and delivery.

On-line coin auctions offer convenience and excitement but to date have been subject to far less regulation than more traditional auctions, and that has created a climate where abuses can - and do - occur. Part of the problem is that on-line auction companies (such as eBay) serve merely as conduits between the buyer and the seller. Unfortunately, many bidders gain a false sense of confidence, reasoning that the large on-line auction firms will safeguard their interests and protect them from fraud and misrepresentation. This is not the case, however, as most on-line auction firms have disallowed responsibility rather than cracking down fraudsters. This leaves victimized bidders to fend for themselves, so arm yourself with the knowledge you need to deal with the real dangers involved.