Q. Can I have a friend submit bids in an on-line auction? After all, the actual buyer doesn’t have to outbid him if it’s not worth the higher price.
A. The tactic you describe is called a “shill bid,” because the accomplice is known as a “shill,” meaning a collaborator in a confidence game. This appellation should give us a clue to the ethical stature of this tactic.
An auction involves an agreement between the seller and the buyers. The agreement is that the seller agrees to sell the object to whoever wins the auction. The bidders agree to take part in the auction under these conditions. People take part in auctions because they want a shot at a bargain. If they want to give the seller a chance to size them up they will negotiate; at least that way the chance to “size up” the other side is mutual.
An almost identical situation is mentioned in the Jerusalem Talmud, which discusses an employer who tricks workers into working for a low wage by telling them that this is what other workers are getting. 1 The conclusion is that the deception is unethical and the workers are entitled to feel resentment towards the employer. The commentators extend this to the parallel situation where the workers trick the employer into paying a high wage by convincing him that this is the going rate. 2 This is an almost exact parallel to the “shill-bid” situation, since the shill’s bid is likewise an outright lie which comes to bid up the price by convincing the true bidder that someone else is willing to pay a high price.
In fact, the shill-bid situation is more severe. In the case discussed in the Talmud, even though the deception is decried, the workers have a partial justification: they can claim that even though the employer was tricked into agreeing to the high amount, if he had refused to pay this amount they would have refused to work 3 But this is not applicable to an auction, where the seller agrees in advance to sell the item to the highest legitimate bidder.
Shill bidding is forbidden because it’s a lie, because it’s against the auction by-rules, and in many places because it’s criminal fraud. A seller who has inadvertently engaged in this practice should come clean and ask the buyer to pay only the highest bona-fide bid not the amount that was elicited by the shill bid.
SOURCES: (1) Yerushalmi Bava Metzia 6:1. (2) Beit Yosef Choshen Mishpat 332. (3) See Shach Choshen Mishpat 332:16.