Buyers afraid of being swindled will stop participating,
thus fewer buyers, meaning fewer sellers, and so on.

Sports memorabilia, we received no responses at all. Of course, these category measures should be taken with a grain of salt, as the number of responses within each category is quite low. Still, the overall response indicates a worst-case estimate of 21.4% negative, with a best-case (and conservative) estimate of 1.6% negative.

We also found the following contingencies:

Selling cheap items

To establish a good track record, they put up many low cost (a few dollars) items for sale and provide excellent service. The feedback from the buyers is highly positive. Once an excellent track record has been established, they go for the kill by putting up for bid expensive items that are never delivered. Once discovered, they repeat the same process under a different identity.

Taking advantage of pooled buyer-seller feedback

Some auction houses provide rating for sellers and buyers, but they do not distinguish between the seller's past selling and buying feedback. Smart swindlers buy and sell many items for a penny or so. They provide excellent feedback to the sellers. Once they have established a long positive record, they put up items for auction.

Changing seller ID

Using several IDs so there is no track record. Auction houses try to overcome such practices by requiring sellers to provide legitimate credit card information in order to receive a seller ID. Unfortunately it is easy for swindlers to receive several credit cards and use them to open accounts on the auction site as sellers.

Changing terms

Changing the payment method. For example claiming that they accept credit card payment but after the auction, insisting on non-credit card payments.

Changing location

Use Internet broadband phone service to establish a U.S. phone number. Use a fake U.S. shipping address while actually being based overseas.

Phishing

• Price does not appear to be a very good predictor of whether the buyer was swindled;

• 25% of the respondents who won auctions with a selling price below an insurability cutoff of $500 were “swindled,” versus only 5% of those winners whose items sold for more than the cutoff (we will discuss “moral hazard” later);

• The location of the seller is not related to whether the item arrived intact in our sample; ²

• Having a photo is not associated with whether anything was received; and

• 26% of respondents whose auctions had a photo did not receive the item intact vs. only 11% of auction winners where there was no photo.

Phishing can provide sellers with fake IDs and other information that permits them to take over an established high rating user account.

Methods swindlers user to appear legitimate.

in auctions, we derived some generalities in the swindling area. First, there are the methods used to actually execute the swindle. Second, there are methods used to avoid appearing fraudulent. The main methods used to actually execute the swindle are shown in Figure 2, while the methods used by swindlers to appear as a legitimate seller to potential bidders are shown in the accompanying table. ³

Perhaps one lesson to be learned from this breakdown is that buyers appear to be more careful in situations in which the dangers are more obvious.

Based on a survey of literature (for example, [ 2, 3, 10]), plus our interviews, plus our own participation

WHAT CAN BE DONE TO REDUCE FRAUD?

Our findings, although preliminary, could spell trouble for bidders in online auction sites, and ultimately the sites themselves. Even though the number of buyers and sellers has been rising rapidly over the last decade, any sudden shift in perception could reverse the cycle [ 10]: Buyers afraid of being swindled will stop participating, thus fewer buyers, meaning fewer sellers, and so on.

We have several broad categories of recommendations based on our study. In this section, we review each category and give specific recommendations to

²Although if we think that swindlers use fake U.S. addresses, we would not expect the location to be associated with swindling. Incidentally, broadband Internet phone service—wherein non-U.S. swindlers can obtain U.S. phone numbers and answer them anywhere in the world—while providing a very valuable service to legitimate customers, is actually exacerbating this problem.

³Buying and selling on the Internet is a very dynamic system that is evolving over time. For every fraud detection procedure that auction houses institute, swindlers adapt and deploy countermeasures that overcome the new defenses. We realize that we might not have covered every method; if a reader knows of anything else, please send it to us so we can continue with our larger follow-up study.