Legal Definitions - by-bidding

By-bidding, also known as puffing, is an illegal practice that occurs in auctions. It involves a seller, or someone acting on their behalf, secretly arranging for a person to place bids on the seller's own property. The sole purpose of these fake bids is to artificially stimulate interest and drive up the price, creating the false impression that there is more genuine demand for the item than actually exists.

Here are some examples to illustrate by-bidding:

• Imagine an art gallery owner auctioning off a painting that hasn't received much attention. Concerned about a low sale price, the owner asks a trusted employee to attend the auction and place several bids on the painting, especially when the bidding seems to stall. The employee has no intention of buying the painting but is merely there to make it appear more desirable to genuine buyers. This scenario is an example of by-bidding because the employee is acting as a secret bidder for the seller, aiming to inflate the final sale price.

• Consider a real estate auction where a homeowner is trying to sell their property. If the initial bids are lower than expected, the homeowner might ask a friend to attend the auction and place bids up to a certain amount, even though the friend has no intention of purchasing the house. The friend's bids are designed to create a sense of competition and encourage legitimate bidders to offer more. This constitutes by-bidding because the friend is not a genuine buyer but is participating to manipulate the bidding process on behalf of the seller.

• In an online auction for a rare collectible, a seller might create a secondary account under a different name. As the auction progresses, if the bidding slows or the price isn't reaching the seller's desired level, they might use this secondary account to place bids on their own item. This action, where the seller is effectively bidding against themselves through a hidden identity to push up the price, is a clear instance of by-bidding.