Online auction sites are amongst the top destinations for e-business and e-commerce trading. There are more than 250 online auctions so far. The most well-established being: eBay, Yahoo, and Amazon auctions.
It is worth noting that over 1.3 million transactions a day take place on Internet auction sites, nevertheless only a small percentage of this figure result in fraud. However, the number of fraudulent transactions should not be undermined, as online auction fraud ranks top of all cyber fraud complaints. The US Federal Trade Commission (FTC) stated that in 2002 auction fraud constituted the largest category of internet related complaints in the FTC’s Consumer Sentinel database, which logged more than 51,000 auction complaints in that year. Similarly, according to a recent survey by the National Consumers League (NCL) 63% of Internet fraud resulted from online auctions where the average loss was $ 478 per person. In 2003, the US FTC released a report on Consumer Fraud and ID Theft, where Internet auctions fraud alone accounted for 48% of Internet-related fraud complaints, which resulted in the loss of $ 437 million in one year only. Before examining the various forms of Internet auction fraud and its raison d’être, it is necessary to state that online auction fraud is not exclusive to consumers or buyers; businesses and sellers also could be victims of online auction fraud. However, consumer buyers represent the major category of victims of auction fraud. With respect to forms of online auction fraud, there are several activities which constitute fraudulent behavior including:
Non-delivery: involves the seller placing an item up for bid when, in fact, there is either no item at all or the seller has no intention to sell. As a result, the item is never delivered to the buyer after he/she purchases the item.
Misrepresentation: Occurs when the seller’s purpose is to deceive the buyer as to the true value of an item by listing false information or using fake pictures of the item.
Non-payment: Involves a buyer placing the highest bid and winning the auction, and as the merchandise is delivered no money is paid. The victim in this case is actually the seller.
Triangulation: Involves three parties: the perpetrator, a consumer, and an online merchant. The perpetrator buys merchandise from an online merchant using stolen identities and credit card numbers. Then, the perpetrator sells the merchandise at online auction sites to unsuspecting buyers. Later, the police seize the stolen merchandise to keep for evidence, and the buyer and merchant end up the victims.
Fee stacking: Involves adding hidden charges to the item after the auction is over to obtain more money. Instead of a flat rate for postage and handling, the seller adds separate charges for postage, handling, and shipping. As a result, the buyer has to pay more than anticipated.
Black-market goods: These goods include copied software, music CD’s, videos, etc. The goods are delivered without a box, warranty, or instructions. Auction sites such as eBay try to stamp out selling such items by prohibiting the selling of unauthorized copies of software, games, music, or video. Multiple violations of eBay’s unauthorized copy policy could result in the suspension of your account.
Multiple bidding: This occurs when a buyer places multiple bids (some high and some low) using different aliases. The multiple high bids cause the price to escalate, and scares off other potential buyers from bidding. Then, in the last few minutes of the auction the same buyer withdraws their high bids, only to purchase the item with their lowest bid. On eBay, it is not permitted to use secondary User IDs or other eBay members to artificially raise the level of bidding and/or price of an item. Equally, retracting bids is not allowed as a rule on eBay, as all bids are binding, except: sales of real estate or businesses, sales of items that are prohibited by law or by eBay’s User Agreement, and other exceptional circumstances (typographical errors, significant change in the description of the item, inability to reach the seller, and unauthorized use of the buyers ID and password)
Shill bidding: is the intentional sham bidding by the seller to drive up the price of his/her own item that is up for bid. This is accomplished by the sellers themselves and/or someone that is associated with the seller making bids to purposely drive up the price of the seller’s item.
Shield bidding: occurs when the buyer uses another email address or a friend (the shield) to drive up prices and discourage bids on an item she wants. At the last minute, the shield withdraws the high bid, allowing the buyer to win the item at a lower price. Most auction sites forbid retracting a bid once it’s made, and on eBay shill and shield bidding is clearly prohibited. Although one or more forms may be prevented under the auction site policies, the main concerns for online auction fraud lies in the non-delivery, delivery of defective goods or late delivery, failure to disclose all relevant information, and non-payment. In the second part of this paper some of the anti-fraud measures that could be used to stamp out fraud will be analyzed.
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