What Is a Mock Auction?

A mock auction is a type of unethical business practice that involves an attempt to defraud potential customers by creating the illusion of demand for a given product, often based on the purported quality and price of that product. The approach, which is usually considered to be a scam, will often involve individuals posing as satisfied customers in order to promote the perception that the product is of high quality and very much in demand. As a final element, the mock auction usually requires that a purchase decision be made within a limited period of time, allowing the potential buyer no opportunity to investigate the offer or the product in detail.

The concept of a mock auction has been around for centuries, and was often used by street vendors who wished to move shoddy merchandise for the highest price possible. To manage the effort, the vendor would pay individuals a small amount to pose as satisfied customers who would mingle in the crowd and then suddenly cry out they wanted to buy one or more of the products offered for sale. They would then expound on the quality and benefits of the products, drawing the attention of others in the crowd. When the scheme worked to best effect, a number of consumers would rush to buy the products, only to realize they were not worth the money after getting home with the goods.

Variations on the mock auction have appeared over the years. While the setting may vary, the same basic strategy is translated into new areas. During the 20th century, investment schemes began to appear that focused on creating a false illusion of the future prospects of buying shares issued by certain companies, with sellers often inflating the potential of those companies without much in the way of evidence to back up the claims. By using individuals known as ringers to promote the stocks by claiming to have made a lot of money on their investment in the company, legitimate investors would buy the available shares, usually at a rate that was only guaranteed for a day or so. While this activity might artificially shore up the stock for a limited time, the lack of quality would typically lead to the shares decreasing in value rapidly, leaving the investors with significant losses instead of gains.

Identifying a mock auction in action can sometimes be difficult. Over the years, unscrupulous individuals who create these schemes have developed increasingly sophisticated means of touting the deals so that even seasoned investors are sometimes deceived. While there is no foolproof way to avoid getting involved with a mock auction, investors can minimize the potential by refusing to be pressured into any investment that seems to be supported by questionable facts and in which the seller requires a commitment immediately instead of allowing the investor time to assess the offer in more detail.