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%
We also found the following
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
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 the payment method. For example claiming that they accept credit card
payment but after the auction, insisting on non-credit card payments.
Use Internet broadband phone service to establish a U.S. phone number. Use a fake
U.S. shipping address while actually being based overseas.
• 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.