E-auction fraud prevention

Recognizing the possibility of fraud caused by asymmetric information, online auction sites have begun to offer various services that are aimed to encourage trustworthiness and reduce fraudulent transactions in the online auction market.

One of the methods used to prevent e-auction frauds is by using the feedback systems. Generally, auction participants can use feedback systems to publicly rate their satisfaction towards their trading partners. Specifically, the feedback system is a measure of a user's reputation in an auction community. The auctioneers encourage all users to check their trading partners' rating before transactions and leave feedback about their trading partners after their transactions. In fact, the system tries to use one's reputation as avoidance of cheating behaviors. For instance, if one develops a bad reputation, other auction participants may not transact with the person anymore. Therefore, it is an incentive for the participants in a transaction to be trustworthy because acquiring a bad reputation can have damaging.

Besides, purchasing an insurance or guarantee is another way to prevent e-auction frauds. Normally auctioneers will offer free or low-cost insurance to protect buyers if they are proven to be victims of fraud. An item is covered by the insurance when the buyer sends money to the seller but does not receive the item, or the item received is significantly different from the item described in the auction. Undoubtedly, this method can promote trust in the online auction business to some extent.

Also, e-auction frauds can be prevented by providing escrow service. Escrow service such as escrow.com acts as a trusted third party in a transaction, providing secure methods to transfer items and payments to both parties. Firstly, the escrow collects payment for the merchandise from the buyer. When the payment clears, the seller is notified to ship the item. Secondly, the buyer notifies the escrow when the merchandise is received and is satisfactory. Finally, the escrow will then release the payment to the seller. Escrow services are particularly useful for large sales, which need a guarantee of a safe and pleasant transaction.