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Bidding War

Sold! on online auctions.

More trustworthy than classified ads and cheaper than a retail outlet, online auctions are rapidly becoming the most cost-effective way for small businesses to buy or sell goods on the Internet. Since Web sites such as Onsale Inc. ( began appearing in 1995, the popularity (and revenues) of online auctions has soared, generating nearly $3 billion in business-to-business sales in 1997, according to Forrester Research Inc. in Cambridge, Massachusetts.

There is no direct state or federal government oversight of online auctions, so fraud is still a real concern for participants. Those who run the auction sites, however, have come up with some ingenious ways of addressing these fears, says e-commerce analyst Erica Rugullies of Cambridge, Massachusetts-based Giga Information Group. On some sites, says Rugullies, "Buyers are given an opportunity to post opinions about sellers and their equipment, so word of a bad apple gets around real fast."

For one business, Eclipse Integration Inc., a value-added reseller of IT equipment in Wareham, Massachusetts, online auctions have become a viable alternative to purchasing from local and national distributors at fixed, nonnegotiable prices. Eclipse's founder and CEO, John White, began visiting the online auction site earlier this year. "I can usually get a lower price on off-brand equipment [at FairMarket] because the auction allows me to haggle directly with vendors," says White.

Still, to really benefit from online auctions, you have to be pretty shrewd, says White. "You need to know the market price of what you want and not bid any higher."

Like many online auction sites, FairMarket Inc. charges a nominal fee for each transaction and, in return, protects the anonymity of buyers and sellers and guarantees satisfaction.

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This article was originally published in the December 1998 print edition of Entrepreneur with the headline: Bidding War.

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