reduce auction fraud along with the advantages and
disadvantages of doing so. The broad categories are
1. Increase the information shared by auction
houses on buyers and sellers.
2. Make the use of legitimate escrow services
extremely easy, and possibly mandatory.
3. Charge the seller an amount equal to the
amount of the sale (temporarily).
4. Develop sensible insurance policies.
5. Institute regulatory
control over the
auction houses. Shill
6. Encourage buyers to bidding
Note that the first cate- Initial Initial
gory is probably thetakes delivery
most important, and places of item
the first and last are the
easiest to implement.
Information on sellers. Generally speaking,
the more information is Empty
disclosed on sellers (and box / worthless
buyers) the easier it is
for buyers and sellers to
verify that they are dealing with a reputable
entity, leading to a
higher degree of confidence in the system.
The problem now is
that the system is based
on self-reporting by
both buyers and sellers.
The auction house cannot guarantee that the
information they provide is accurate. 4 It is still the responsibility of the
buyer and seller to verify the data.
Auction houses collect a significant amount of
data. Making more of it public increases the chances
that a transaction will be valid. Here is some data that
should be posted for all reputation scores:
Wait for Y
Figure 2. Possible Internet auction
• The percentage of positive responses of the total
4Using tools available on the Net it is possible to verify a significant part of the information needed to establish the person or company identity, for example, does a person with that name exist in his address? Is the phone number associated with him? Is
such a company declared and filed with his local authorities? What is his educational
background? Does he have a family? With whom did he deal in the past? In some
cases, what is his credit score? The amount of useful data that can be collected on the
Internet pertaining to an individual is surprising.
number of transactions for sellers (some sites
began doing this in 2003) rather than the
absolute number. In many cases, the auction
houses only reveal the number of positive scores,
thus if someone sells 1,000 items, of which 100
are positive, she or he would have a higher score
than someone with 99 positives out of 99 auctions.
• As mentioned in the table and discussed in Chua
and Wareham [ 2], some sellers sell (or buy) a
large number of cheaper items to establish their
reputation. To address
this, we propose posting
Auction the average selling price
“loser” (or a distribution of
selling prices) of all the
Unsolicited seller’s previous auc-
proposal for same tions. It would be even
item better to divide it into
months and also by
Fake Fake US item category.
company address • Separate statistics for
selling vs. purchasing.
This reduces the
Refund No chances that a seller can
offered refund, after X seller establish a positive rep-
(~ 45) days keeps cash utation by simply buy-
ing many low-cost
items, which he subse-
Accept quently sells thus dou-
immediately, bling his positive score.
paid in 60
days • Seller activity history
(not score) as a func-
Refund requested, tion of time. The pat-
paid in 60 days tern of activity and
dollar value can provide
clues to participants.
• The number of distinct users (buyers) that participated in creating a reputation history for a seller.
• Statistics on the number and percentage of cases
in which the seller was not paid, or buyer did not
pay (indicates a shill bidder running up the price
if it happens too often).
• Information on the seller, for example, listing the
physical (as opposed to electronic) address for
payment at the end of the auction. Such physical
information can help determine if this is a legitimate seller or a swindler. In addition, there are
Internet-based tools that could be used to disin-guish real from purely virtual sellers. Auction
houses could accomplish this by sending a physical letter to the postal address of the registered
user, much as a bank sends a PIN under separate
cover to a postal address.