Auction is market mechanism where buyers make bids and sellers place offers. It is characterized by the competitive and dynamic nature by which the final price is reached. Electronic auctions(e-auctions) is auction which is conducted online, and it have been in existance for several years. individual consumers and corporations alike can participate in this rapidly growing and very convinient form of e-commerce. E-auction undoubtedly brings a lot of advantages to both buyers and sellers. To sellers they can enjoyed increased revenues, get optimal price setting, remove of expensive intermediaries, get better customer relationship, enjoys liquidation, lower their transactions as well as administrative costs. To buyers, they can enjoy the opportunity to find unique items and collectibles, chance to pay less, entertainment, anonymity and convenience.However, there is also limitation of e-auctions and one of them is that it faces the possibility of fraud. Fraud can be conducted by sellers as well as buyers or others. The following are some examples of fraud:
- Bid shielding
- Shilling
- Fake photos and misleading descriptions
- Improper grading techniques
- Bid siphoning
- Selling reproductions as originals
- Failure to pay
- Failure to ship merchadise
- Loss and damage claims
- Fake escrow services
- Other frauds
According to Internet Fraud Watch, of all e-commerce activities conducted over the Internet, fraud is most serious in e-auctions. E-auction fraud accounted for 70 percent of the e-commerce fraud that occurred in 2001 (down from 87 percent in 1999). The average auction loss is $518 per complaint, and roughly $6.1 million was lost due to fraudulent activity in 2001.Following are action to prevent e-auction fraud used by eBay-the largest internet auctioner to reduce fraud:
1. User identity verification such in IC number, driver’s license number or date of birth. For example, verified eBay user, the voluntary program, encourages users to supply eBay with information for online verification. By offering their Social Security number, driver’s license number, and date of birth, users can qualify for the highest level of verification on eBay.
2. Authentication service. Product authentication is a way of determining whether an item is genuine and described appropriately. It difficult to perform because it relies on the expertise of the authenticators, Because of their training and experience, experts can (for a fee) often detect counterfeits based on subtle details. However, two expert authenticators may have different opinions about the authenticity of the same item.
3. Grading services which is a way to determine the physical condition of an item, such as ‘poor quality’ or ‘mint condition’. Different item have different grading systems. For eg, trading cards are graded from A1 to F1, whereas coins are graded from poor to perfect uncirculated.
4. Feedback forum. It allows buyers and sellers to build up their online trading reputations. It provides user with ability to comment on their experiences with other individuals. For example, eBay offers insurance underwritten, users are covered up to $200, will with a $25 deductible. The program is provided at no cost to eBay user.
5. Escrow services. Both buyers and sellers in a deal are protected with an independent third party. Buyer mails the payment to escrow services which verifies the payment and alerts the seller when everything checks out. An example of a provider of online escrow services s i-Escrow.
6. Non-payment punishment. To protect sellers, a friendly warning for first-time nonpayment. A sterner warning is for second-time offense, with a 30 day suspension for a third offense and an indefinite suspension for a fourth offense.
7. Appraisal services which use a variety of methods to appraise items. It includes expert assessment of authenticity and condition, and reviewing what comparable items have sold for in the marketplace in recent months. An appraised value is usually accurate at the time of appraisal but may change over time as an item becomes more or less popular in the marketplace.
8. Item verification is a way of confirm he identity and evaluate the condition of an item. Third parties will evaluate and identify an item through a variety of means. For example, some collectors have their item “DNA tagged” for identification purpose. It provides a way of tracking an item if it charges ownership in future.
9. Physical inspection. It can eliminate many problems especially for collectors’ item. When the seller and buyer are in the same vicinity, it is easy to arrange for such inspections. eBay offers inspection services on a regional basis, so buyers can arrange for nearby inspections.
10. Insurance policy. eBay offers insurance underwritten by Lloyd's of London. Users are covered up to $ 200, with a $25 deductible. The program is provided at no cost to eBay users. Supplementary insurance is available from companies such as AuctionInsurance.com. At other auction sites, such as Amazon.com/ auction, some insurance is provided, but extra insurance may be added.
Tips for Buyers
- Identify the seller and check the seller’s feedback rating.
- Do your homework. Be sure you understand what you’re bidding on, its relative value and all terms and conditions of the sale, including the seller’s return policies and who pays for shipping.
- Establish your top price and stick to it.
Evaluate your payment options. If possible, use a credit card. It offers the most protection if there’s a problem. Consider using an escrow service if the seller doesn’t accept credit cards.
References:
http://amazingcommerce.wordpress.com/2008/06/26/things-to-take-note-to-prevent-e-auction-fraud-when-a-consumer-participating-in-an-e-auction
http://wps.prenhall.com/wps/media/objects/260/267260/online_appendices/Turban-Appendix2A.pdf
Prepared by: YEAP SUE YIE
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