By Bezalel Gavish and Christopher L. Tucci
When it comes to online auctions, “caveat emptor”
is an understatement.
REDUCING INTERNET
AUCTION FRAUD

Fraud on the Internet is developing into a major issue for consumers, businesses, and governments [ 1, 6, 10]. The Financial Times in 2003 called online fraud “an epidemic of huge and rapidly growing proportions” and noted the incidence of fraud was 20 times higher online than offline [ 12]. The complaints of online fraud registered at the IC3 Web site— which is jointly sponsored by the U.S. Federal Bureau of Investigation and the U.S. National White Collar Crime Center—have grown from around 20,000 in 2000 to around 200,000 in 2007, which represents a compound annual growth rate of 39% [ 7]. At the same time, the dollar value of losses has skyrock-

eted at an annual rate of 50% from less than $18 million in 2001 to over $200 million in 2007 [ 7].

One area that is particularly interesting is auctions. Auction fraud reported to the Federal Trade Commission has likewise grown tremendously from 106 in 1997 to around 24,000 in 2007 [ 9] and continues to climb dramatically. Internet auction fraud is one of the main sources of overall Internet fraud, with estimates of incidence from 64% to 87% of all Internet fraud [ 4, 7]. However, major Internet auction sites estimate that fraud is involved only once in approximately 10,000 auctions [ 9], which appears to contradict these observations.