Online Auction Fraud
Online auction has become pretty common with the widely spreading Internet. This article from CBC news reveals the occurrence of online auction fraud on eBay. It reports the research interest of Professor Sadaoui of Computer Science from University of Regina – she is developing “a software to detect fraudulent behavior”. The article focuses on the in-auction fraud, and defines it as the behavior that bidder does not desire to maximize his or her own benefit, but aims to drive up the price of the selling good. Sadaoui suggests some ways to identify the cheater based on analysis of bidder’s behavior, and points out that fraud-detecting software is valuable to companies like eBay.
Before discussing more about the auction fraud, some explanations of eBay’s auction system would be helpful. eBay’s online auction system is the ascending bid type auction that we discussed in class. Buyers are asked to set the good’s value to them (not visible to other bidders), and the system is going to bid for the buyers until the price reaches the limit set by them before. This type of auction is equivalent to the second price auction, since the bidder who bids the highest price wins, but not necessarily paying at his or her actual value.
Based on this auction system, according to the article, Sadaoui points out that the fraud can inflate the price of the good, which contradicts our assumption that bidders know their own values – or actually the bidders know their own values, but do not rationally follow their dominant strategy to drop out after the values have been reached. The online auction fraud reflects this slight deviation from our game theory model. It is disturbing not only because it makes us pay more, but also because it disrupts one of the assumptions of our game theory model – there exists players, who do not want to maximize their payoffs.
Sources:
Information about eBay’s online auction: http://pages.ebay.com/education/gettingstarted/bidding.html