Things to take note to Prevent E-Auction Fraud when a Consumer Participating in an E-Auction

what is e-auctions?

• Electronic auctions (e-auctions), auctions conducted online, have been in existence for several years on local area networks (see Section 12.4) and were started on the Internet in 1995. Host sites on the Internet serve as brokers, offering services that enable sellers to post their goods for sale and allow buyers to bid on those items.
  

Types of e-auction fraud

• Bid shielding (a buyer’s action). The use of phantom bidders to bid at a very high price when an auction begins is called bid shielding. The phantom bidders pull out at the last minute, and the bidder who bids with a very low price wins. The bogus bidders were the shields, protecting the low bid of the bidder in the stack. By bid shielding, a ring of dishonest bidders can target an item and inflate the bid value to scare off other real bidders.

• Shilling (a seller’s action). In shilling, sellers arrange to have fake bids placed on their items (either by associates or by using multiple user IDs) to artificially jack up high bids. If they see a legitimate high bid that doesn’t meet their expectations as the end of an auction draws near, they might pop in to manipulate the price.

• Fake photos and misleading descriptions. In reaching for bidders’ attention,some sellers distort what they can truly sell. Borrowed images, ambiguous descriptions, and falsified facts are some of the tactics that sellers might employ to convey a false impression of the item.

• Selling reproductions (a seller’s action). A seller sells something that the seller claims is original, but it turns out to be a reproduction.
  

• High shipping costs and handling fees (a seller’s action). Some sellers just want to get a little more cash out of bidders. Postage and handling rates vary from seller to seller. Some charge extra to cover “handling” costs and other overhead intangibles, whereas others charge to cover the cost of packaging supplies, even though such supplies are often available for free.
  

• Failure to ship merchandise (a seller’s action). This is the old collect-and run routine. Money was paid out but the merchandise never arrives.
  

• Loss and damage claims (a buyer’s action). Buyers claim they never received an item or received it in damaged condition and then ask for a refund. They might be trying to get a freebie. The seller sometimes cannot prove whether the item ever arrived or whether it was in perfect condition when shipped.

Prevention e-auction fraud

• User identity verification. eBay uses the services of Equifax to verify user identities for a $5 fee. Verified eBay User, a 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.
  

• Authentication service. Product authentication is a way of determining whether an item is genuine and described appropriately.Authentication is very 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.
  

• Grading services. Grading is a way of determining the physical condition of an item, such as “poor quality” or “mint condition.” The actual grading system depends on the type of item being graded. Different items have different grading systems—for example, trading cards are graded from A1 to F1, whereas coins are graded from poor to perfect uncirculated.
  

• Feedback Forum. The eBay Feedback Forum allows registered buyers and sellers to build up their online trading reputations. It provides users with the ability to comment on their experiences with other individuals.
  

• 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.
  

• Escrow services. For items valued at more than $200 or when either a buyer or seller feels the need for additional security, eBay recommends escrow services (for a fee). With an easy-to-access link to a third-party escrow service, both partners in a deal are protected. The buyer mails the payment to the escrow service, which verifies the payment and alerts the seller when everything checks out. At that point, the seller ships the goods to the buyer. After an agreed-upon inspection period, the buyer notifies the service, which then sends a check to the seller. (An example of a provider of online escrow services is tradenable.com.)
  

• Nonpayment punishment. eBay implemented a policy against those who do not honor their winning bids.To help protect sellers, a first-time nonpayment results in a friendly warning.A sterner warning is issued for a second-time offense, a 30-day suspension for a third offense, and indefinite suspension for a fourth offense.
  

• Appraisal services. Appraisers use a variety of methods to appraise items, including 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.

• Verification. One way of confirming the identity and evaluating the condition of an item is through verification.With verification, neutral third parties will evaluate and identify an item through a variety of means. For example, some collectors have their item “DNA tagged” for identification purposes. This provides a way of tracking an item if it changes ownership in the future.