UNITEDSTATESOF AMERICA 

FEDERAL TRADE COMMISSION

Washington, DC 20580 

Office of Policy Planning 

Bureau of Competition 

Bureau of Consumer Protection 

Bureau of Economics 

May 26,2006 

The Honorable Noble E. Ellington 

Louisiana State Senate 

P.0 Box 941 83 

Baton Rouge, LA 70804 

Dear Senator Ellington: 

The staffs of the Federal Trade Commission's ("FTC" or "Commission") Office 

of Policy Planning, Bureau of Consumer Protection, Bureau of Economics, and Bureau of 

competition1 are pleased to respond to your request for comments on Louisiana Senate 

Bill 642 ("SB 642" or the "Bill"), which would "define more clearly the exact nature of 

the type of seller who must become licensed as an auctioneer." The FTC has 

considerable experience in analyzing both consumer protection and competition issues 

related to Internet auctions and online ~ommerce.~ Based on our experience, we believe 

that, if enacted, SB 642 will enhance consumer welfare by reducing barriers to entry in 

the provision of online auction and retail services and thereby expanding consumer 

1 This letter expresses the views of the Federal Trade Commission's Office of Policy Planning, 

Bureau of Competition, Bureau of Consumer Protection and Bureau of Economics. The letter does not 

necessarily represent the views of the Federal Trade Commission or any individual Commissioner. The 

Commission has, however, voted to authorize us to submit these comments. 

2 The FTC is the leading U.S. consumer protection agency and works with auction websites such as 

eBay and the states to combat fraud and related problems in Internet auctions. It provides help to buyers 

and sellers to navigate potential pitfalls of using the Internet and Internet auction sites. See ONGUARD 

ONLINE,http://onguardonline.gov/auctions.htmland INTERNET AUCTIONS: AGUIDE FOR BUYERS AND

SELLERS,h~://www.ftc.govlbcplconlinelpubs/onlinelauctions.pdf.Note that there are a number of 

Internet auction houses, including Yahoo!, Amazon and Ubid. The FTC7s Bureau of Economics recently 

hosted a roundtable on the economics of Internet auctions. See Internet Auction roundtable Web site at 

http://www.ftc.gov/be/workshops/inte~.The FTC also hosted a conference 

on the anti-competitive barriers to e-commerce. See E-commerce Workshop Web site at 

~~:I/www.~~c. g~~/~pp/e~~mmer~e/antic~mpetitive/index.htrn. 

choice. We also believe the Bill will not increase the risk of consumer harm from auction 

fraud. 

The Proposed Legislation 

Current Louisiana law defines an auction as "[the sale by] competitive bid on any 

property."3 Based on its interpretation of this definition, the Louisiana Auctioneer' s 

Licensing Board ("LALB") recently began to require online auction house Trading 

Assistants ("TAs") to have either an auction business license or an auctioneer's license to 

operate. A consumer delivers his or her merchandise to a TA, who then sells it through 

an online auction house in return for some compensation, typically a percentage of the 

final sales price, although compensation schemes vary. TAs include individuals helping 

with a few transactions a year, large businesses with bricks and mortar locations, and 

online auction drop-off store^.^ It is our understanding that the LALB would require TAs 

to pay an annual license fee of $300, buy a $10,000 surety bond, and, if required, to 

obtain an auctioneer's license, receive the necessary education, training, and continuing 

education. 

The Bill would change the definition of auction by adding qualifying language to 

the existing statutory definition: 

"Auction" means the sale by competitive bid on any property which sale consists 

of a series of invitations for offers to purchase property made by the auctioneer 

and offers to purchase made by members of the audience culminating in the 

acceptance by the auctioneer of the highest or most favorable bid.6 

It is our understanding that this proposed change would exempt fiom LALB's licensing 

requirements businesses and individuals that offer property through online auction houses 

exclusively.7 

3 37 LA. REV. STAT. ANN. 5 3103 (A) (3). bbAuctioneer"means any person who, for another, with 

or without receiving or collecting a fee, commission, or other valuable consideration, sells or offers to sell 

property at an auction. Id. at 3 103 (A) (4). 

4 See John Hill, Louisiana, eBay Bidding War of Words, SHREVEPORT TIMES, Apr. 11,2006, at 

h~://shreveporttimes.comlapps/pbcs.dlD006041 l/NEWSO 11604 1203 131-11LEGISLATUR. 

5 To be licensed as an auctioneer in Louisiana, the person must have completed "[a] series of studies 

at a school of auctioneering licensed or approved by the board" or "[aln apprenticeship of one year working 

with and under an auctioneer duly licensed in the state of Louisiana." 37 La.sec. 3 1 13 (A) (4) (a-b). The 

approved schools are listed at http://www.lalb.org/schools.htm. 

7 
 For example, sales via online auctions would be excluded fiom this definition because there is no 

auctioneer who makes "a series of invitations for offers." This definition is similar to the definition used in 

Tennessee (62 Tenn. § 19-101 (2)). The Tennessee Attorney General recently wrote that the Tennessee 

Auctioneer Commission does not have authority over Internet auction drop-off stores. Further, one 

interpretation of the detailed opinion is that the Tennessee law does not cover Internet auction house 
Competitive Effects of Proposed Legislation 

By clarifying who needs to be licensed as an auctioneer or auction business, SB 

642 will exempt fiom licensing requirements businesses and individuals who facilitate 

the use of online auction houses. This change will remove a barrier to entry (recently 

erected by the LALB), increasing consumer choice and likely leading to lower prices for 

TA services and concomitantly greater availability of goods from Louisiana for buyers in 

Louisiana and elsewhere. 

The current requirement that TAs obtain an auction business or auctioneer's 

license is likely to increase the price that TAs in Louisiana charge for their service. First, 

it is likely that TAs will pass on a portion of the increased costs that they must incur as a 

result of licensing requirements to consumers in the form of higher prices. Further, if the 

total licensing costs are significant, some TAs and others may stop providing online 

auction and retail services altogether. If the current LALB policy reduces the number of 

TAs, the price of those services is likely to rise, making both potential sellers and 

potential buyers worse off. The presence of fewer competitors may reduce competition 

on price and quality among TAs and increase market power for market participants.8 

TAs provide a valuable service to those who want access to online markets, but 

prefer not to sell goods themselves through online auction house^.^ Further, given their 

relative experience using online auction houses, TAs are likely to be able to sell goods 

more effectively than their clients, by, for example, choosing the best mode to sell a 

particular item.'' Standard economic theory also suggests that businesses such as TAs 

Trading Assistants. See Tennessee Attorney General Opinion No. 06-053 (March 27,2006), at 

http://www.attorneyaeneral.state.tn.us/op/2006/OP/OP53 .pdf. 

8 Standard,economic reasoning suggests that free entry will allow the market price to fall to where 

the market demand is covered by the most efficient suppliers (see ROBERT PINDYCK& DANIELRUBINFELD, 

MICROECONOMICS ch. 8 (5" ed. 2001)). A number of standard economic theories suggest that a small 

number of competitors or reduced geographic or differentiated product competition will lead to higher 

prices. See id. at ch. 12. 

9 A number of studies have found that high feedback scores are associated with higher revenue for 

sellers. On eBay, feedback can be given after each transaction. The feedback includes a positive, negative, 

or neutral rating and written comments. eBay tracks and publishes the aggregate feedback score where a 

positive is equal to 1, a negative to -1 and a neutral is 0. To the extent that sellers can choose TAs with 

higher feedback scores this may lead to higher returns than these sellers could have received selling directly 

on eBay. See, e.g., Paul Resnick et al., The Value of Reputation on eBay: A Controlled Experiment, at 

http://www.si.urnich.edu/-presnicMpapers/postcards/. According to eBay, "To be included in the Trading 

Assistant Directory and have access to Trading Assistant marketing materials, you must have (1) sold at 

least 10 items in the last 90 days, (2) a feedback score of 100 or higher, (3) 97% positive feedback or 

higher, and (4) your eBay account must be in good standing." For fiuther information see eBay, Trading 

Assistant Program, htt~://~a~es.ebay.com/tahub/index.html. 

10 eBay and other Internet auctions provide numerous methods and mechanisms for selling items. 

For example, on eBay, not only is there the standard auction format, but there are also fixed price options 

(also known as "Buy-It-Now"), Best-Offer options, eBay Stores and eBay Express, plus combinations of 
that specialize in selling items on online auction houses will be able to achieve lower 


costs relative to infrequent sellers through the purchase of capital equipment and access 


to larger buying volumes. 


If TA services are more expensive, fewer goods and services will end up for sale 

in online auction houses. Online auction houses provide a national, or even international, 

market for products that may have only traded locally prior to the Intemet.12 By allowing 

bidders throughout the United States to bid on goods offered for sale in Louisiana, online 

auction houses may lead to large gains from trade to consumers in Louisiana and 

elsewhere.13 Online auction houses allow items to be traded to the people who want the 

goods the most, irrespective of where those people live.14 By decreasing Louisiana 

residents' use of online auctions houses, the LALB7s policy is likely detrimental to sellers 

in Louisiana and, by reducing the supply of goods fiom Louisiana available through 

online auction houses, to buyers in Louisiana and elsewhere. 

Further, to the extent that TAs place competitive pressure on established 

auctioneers, the current LALB policy may increase the price that some consumers pay for 

traditional auctioneers' services. In particular, this may occur if traditional auctioneers 

the above. Internet auction sellers also have options on the length of the auction, the minimum bid amount, 

whether to use a hidden reserve, and the amount of the hidden reserve. See Robert Zeitharnrner, When is 

Auctioning Preferred to Posting a Fixed Selling Price, at 

http://asbwww.uchica~o.edu/fac/robert.zeithaer/researcactioned
 goods sept 05.pdf. 

11 For example, TAs are likely to own shipping equipment and purchase relatively large levels of 

shipping services. 

12 See, e.g., Christopher Adams et al., 'Vettes and Lemons on eBay (finding that the average bidder is 

willing to travel 700 to 800 miles to purchase a used car), at 

http://papers.ssrn.com/sol3/par>ers.cfm?act id=880780. 

13 For example, eBay, the leading online auction house, has 72 million active users, including one 

million TAs, participating in auctions valued at $22 billion in 2005. See ebay Unaudited Supplemental 

Operating Data at http://investor.ebay.comldown1oads/fi1ndMetrics.pdf. Further, it was recently 

estimated that eBay contributed $6.5 billion annually to consumer welfare. Ravi Bapna et al., Consumer 

Surplus in Online Auctions, at htt~://~a~ers.ssrn.com~sol3/~a~ers.ch?abstract id=840264. See also 

Bapna presentation at the Internet Auction Roundtable at 

htt~://www.ftc.gov/be/worksho~s/internetauction~ravibapnaslides.~df.
 In Louisiana, eBay has 460 TAs and 

approximately 1,500 people making a full or part-time living from eBay. 

14 eBay's standard auction format allows bidders to bid "as if' they are attending a live auction 

without the need to actually attend and without having to bid as the auction progresses. This format gives 

sellers access to bidders in all parts of the country and in all time zones. eBay uses a "proxy bidding" 

system where the bidder enters the highest amount he or she is willing to pay and the system sets the price 

at the second highest proxy bid. William Vickrey won the Nobel Prize in Economics in part for the 

realization that bidders will behave in a similar manner in an eBay-style auction as they will in a standard 

live auction. The equivalence between sealed-bid second price auctions and "English" auctions has been 

independently discovered on a number of occasions. See David Lucking-Reiley, Vickrey Auctions in 

Practice: From Nineteenth-Century Philately to Twenty-First-Century E-Commerce, 14 J. ECON. 

PERSPECTIVES183 (2000). 
compete with TAs by offering online auction and retail services. Auctioneers or auction 

businesses that have already satisfied the licensing, insurance and education requirements 

can provide online auction and retail services without concern about competition from 

unlicensed TAs. 

Consumer Protection Issues Related to Online Auction Houses 

FTC staff works with online auction houses and the states to reduce fraud 

associated with Internet auctions and to educate consumers on the risks associated with 

using Internet auctions.15 The FTC also hosts the Consumer Sentinel database, which 

collects information on consumer complaints. Consumer Sentinel data show that fraud in 

Intemet auctions is one of the largest sources of consumer complaints received by the 

FTC? 

We are not aware of any particular consumer protection problem with TAs in 

Louisiana, and it is unlikely that requiring TAs to become licensed auctioneers or 

licensed auction businesses will address the most serious fraud-driven consumer 

complaints associated with Internet auctions -that sellers fail to send the merchandise.17 

15 The FTC has issued extensive education for both Internet auction sellers and buyers. Some of the 

tips the FTC offers buyers on how to avoid falling prey to Internet auction fraud include: (1) becoming 

familiar with the auction site and its protections for buyers; (2) before bidding, researching the seller and 

avoiding doing business with sellers who try to lure a buyer off the auction site with promises of a better 

deal; (3) being cautions about escrow or online payment services that are unknown or have no functioning 

contact information; (4) protecting privacy by not providing personal or financial information until 

ensuring the legitimacy of a seller or payment service; (5) saving all transaction information; and (6) 

contacting the FTC or state attorney general's office if problems cannot be resolved. 

16 However, Consumer Sentinel complaints are self-reported, and the volume of these complaints do 

not correlate to the actual frequency of consumer problems. In 2005 there were approximately 80,450 

complaints received by the FTC regarding Internet auctions (http://www.ftc.gov/opa/2006/01/topten.htm). 

In comparison, there were approximately 1.9 billion items listed on eBay alone (see 

http://investor.ebay.corn/downloads/~ndMecs.pd. That is, there was an average of one complaint for 

every 23,000 items listed. For a discussion of this issue presented at the Internet Auction Roundtable see 

Keith Anderson, Internet Auction Fraud: What can we learn from Consumer Sentinel data?, at 

http:Nwww.ftc.nov/be/workshops/internetauction/keithandersonslides.pdf. For more recent estimates of the 

frequency of problems on eBay see Chris Dellarocas & Chris Wood, The Sound of Silence in Online 

Feedback: Estimating Trading Risks in the Presence of Reporting Bias, at 

http://clients.pixelloom.info/WISE2005/papers/16l .pdf. 

17 For a discussion of complaints from the FTC's Consumer Sentinel database see OnGuard Online 

Web site at h~://onnuardonline.nov/auctions.html#fiaud.Other complaints about Internet auctions 

include: sellers who send something of lesser value than advertised; sellers who fail to deliver in a timely 

manner; sellers who fail to disclose all relevant information about a product or terms of the sale; bid 

siphoning; second chance offers, shill bidding and bid shielding. For 2005, Louisiana ranked 48 among the 

50 states with approximately 80 total fraud complaints in the Consumer Sentinel per 100,000 people in the 

population. In 2005, Louisiana had 750 fraud complaints associated with Internet auctions in the Consumer 

Sentinel. This represents about 20% of all Louisiana fraud complaints in the database, which is slightly 

lower than the national average of about 25% (see Anderson presentation). The Consumer Sentinel collects 

consumer complaints from numerous sources and on numerous topics. For more information see 

Consumer Sentinel Web site at http:Nwww.consumer.p;ov/sentinell. The Louisiana Auctioneers 

Association (letter dated May 9,2006) states that the $10,000 surety bond could be used to pay restitution 
Recently, problems involving non-shipment of merchandise have occurred with 

fraudsters fiom overseas stealing legitimate eBay accounts and eBay user IDS." 

To the extent that TAs have high feedback ratings, removing them fiom the 

market may actually make consumers worse off.lg Recent academic studies suggest eBay 

sellers with high feedback scores are more likely to provide accurate information and are 

less likely to commit fraud.20 Moreover, to the extent that TAs rely heavily on having a 

good feedback score for continued business, TAs are less likely to provide poor 

information or commit fraud. Further, to the extent that TAs have physical locations and 

brand names, they would have even less incentive to harm or mislead consumer^.^' If 

licensing were voluntary for TAs, they may have an incentive to become licensed 

auctioneers or licensed auction businesses to signal their trustworthiness to potential 

sellers and buyers. Voluntary memberships in the Better Business Bureau or voluntary 

licensing as an auctioneer or an auction business are two ways for TAs to establish trust 

with potential clients and customers.22 

Conclusion 

Consumers in Louisiana benefit from the use and availability of TAs. The 

LALB's requirement that TAs become licensed auctioneers or licensed auction 

businesses is likely to harm consumers by reducing choice and increasing prices. 

Although there may be legitimate consumer protection concerns associated with auction 

fraud, the LALB7s action does not seem to be tailored to such concerns. Based on our 

review, FTC staff believes that if enacted, SB 642 is likely to enhance consumer welfare 

in Louisiana. 

We appreciate the opportunity to present our views. Please do not hesitate to 

contact us about this issue. 

to a consumer (presumably a consumer who is a buyer) for a fraudulent sale. While a surety bond could 

protect those buyers, there are other protection mechanisms available to buyers in the online auction 

marketplace. 

18 See, e.g., Benjamin Sutherland, Swimming With Sharks, NEWSWEEK INT'L (March 27,2006), at 

http://www.msnbc.msn.cornlidll1900480/site/newsweeW. 


19 See note 9, supra, for an explanation of feedback ratings. 

20 See, e.g., Ginger Jin, Price, Quality and Reputation on eBay, Presented at FTC Internet Auction 

Roundtable (Oct. 27,2005), at http://www.ftc.~ov/be/workshops/inte~ 

21 When there are information problems in a market, reputations and brand names may play an 

important role in building trust with customers. See, e.g., James Lacko, PRODUCT QUALITY& 

INFORMATION IN THE USED CAR MARKET, FTC Bureau of Economics Staff Report (Jun. 1986). 

22 Standard economic reasoning, dating back to work by Nobel Laureate Michael Spence, suggests 

that if there are higher costs to hucksters becoming licensed auctioneers relative to honest service 

providers, then voluntarily becoming a licensed auctioneer sends a signal of quality to potential sellers and 

buyers. See Michael Spence, Job Market Signaling, 87 Q. J. ECON.355 (1 973). 
Respectfully Submitted, 

Maureen K. Ohlhausen 

Director, Office of Policy Planning 

Michael A. Salinger fl 

Director, Bureau of Economics 

Jeffrey schmidt 

Director, Bureau of Competition 

Director, Bureau of Consumer Protection