• Some auction houses limit the history available
on auction results. For example, eBay gives out
details (details about individual item auctions) for
only 90 days after activity. A crook makes sure
she or he goes 90 days back and gets good comments selling cheap items, then does not sell too
many items for 90 days. The auction houses can
do better by keeping the history longer. (This
would raise the cost of storage but we do not feel
that it would be a very large expense amortized
over many auctions; further it would increase
confidence and liquidity.)
• Give out actual email addresses or at least release
actual email addresses and other information to
the other party under certain circumstances. For
example, auction winners could demand it before
final payment takes place. Auction houses could
inform the seller automatically that their information has been given to the winning buyer.
Auction houses now avoid this practice to prevent
buyers and sellers from taking their transactions
“offline” and thus circumventing some of the fees
charged by the auction house.
• Flags based on statistical analyses of past behavior
by sellers (for example, using quality control
methods). For example, if price skyrockets or volume jumps dramatically for this seller, the auction would be “flagged” for all bidders to see,
thus raising awareness of the potential for swindling. The seller could have the flag removed
through some certification process, for example,
proving that he or she actually has the items.
Another alternative is the computer gives the
item the flag and the seller has the choice of continuing or not.
• Develop efficient methods for bidders to alert the
auction houses about swindling sellers. Swindlers
can discover the response times of auction houses
to swindling alerts, for example how quickly do
they remove a false auction, or announce the existence of a swindler to the bidding community?
Based on the expected response time information,
swindlers design the timing of their selling activity.
• Mechanism for alerting other users about sellers.
This one must be treated very carefully. The
advantage is that by quickly getting the word out,
one avoids others from falling victim to the
swindler. On the other hand, it is difficult to
adjudicate and decide when someone should be
“blacklisted.” It could be that a buyer hates a
seller and uses it for revenge; or purely for strategic reasons, a buyer gives out some alert that
reduces the price so the buyer himself can get a
better price! Or, a seller can use such a mechanism to remove (temporarily) other sellers of
competing items. It is understandable why auction houses have shied away from this one, but
perhaps some kind of “Amber Alert” for auction
swindlers could be developed, perhaps by holding
accusers responsible for issuing the alert.
• Divide sellers into classes based on their past performance and rating by buyers. Use different flags
to identify reliable sellers from less reliable ones
(for example, classes of power users on eBay).
Advantages and disadvantages. The more information buyers and sellers have on each other, the better
off they are. We should keep in mind that this additional information can be used by swindlers to better target their messages/offers to potential victims.
Auction houses, on the other hand, have interests in
protecting the identity of buyers and sellers, so it is
a question of balance. All of these involve disclosing
information about buyers and sellers (mainly sellers). In our opinion, however, legitimate sellers
should be happy to reveal their information to benefit from the price premium of being reliable. 5 This
direct cost is negligible, involving hiring a few people to develop the algorithms and the software to
display the new calculations.
Escrow. Extremely easy, seamless, and possibly
mandatory escrow services should be available for all
auctions. A small service charge could be added to the
listing fee to facilitate the transaction. We propose the
following modifications to the escrow systems currently in place:
• Traders should only use escrow services officially
certified by the auction house. Auction houses
should develop a list of escrow services that they
have certified and provide a direct link to the
• Shipping the item to a third reliable party, who
inspects it, instructs the buyer to pay the seller,
and once payment (or proof) has been received,
transfers the item to the buyer. This incurs an
extra shipping cost, which may make it prohibitive for less expensive items; still, for expensive
items, the shipping cost is minor compared to the
cost of the item.
• We notice that the premium to reputation is
about 20% on expensive items. There is a busi-
5Revealing the sellers identity on the auction site could be an option that the seller
selects, thus giving the indication that he is legitimate. Sellers of very expensive items
(cars), list in the body of the listing information that allows potential buyers to verify
that they do exist and do business (their dealership title, address, phone number, vehicle location and stock number, VIN, and many pictures of the car).