• 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 sites.

• 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).