The Role of Reputation Systems in Reducing Online Auction Fraud

Gregg, Dawn G. & Scott, Judy
International Journal of Electronic Commerce Vol. 10 Issue 3, p. 97-122

Online auctions are one of the most profitablesuccessful types of e-businesses; however, online auctions also provide an avenue for unscrupulous sellers to perpetrate fraud. Online auction fraud is currently the most frequently reported crime committed over the Internet. This research investigates whether online reputation systems are a useful mechanism for potential buyers to avoid fraudulent auctions. Content analysis of complaints posted in an online auction reputation system is used to improve our understanding of online auction fraud and the role of reputation systems in documenting, predicting, and reducing fraud. Results of this study show that the number of fraud allegations found in an online reputation system significantly exceeds the number of fraud allegations made through official channels. It also demonstrates that recent negative feedback posted in an online reputation system is useful in predicting future online auction fraud. Finally, results of this study suggest that experienced online auction buyers are in a better position to use using reputation system data to avoid potentially fraudulent auctions.