Building trust in online auction markets through an economic incentive mechanism

  • Authors:

  • Sulin Ba;Andrew B. Whinston;Han Zhang

  • Affiliations:

  • Department of Information and Operations Management, Marshall School of Business, University of Southern California, Los Angeles, CA;Department of Management Science and Information Systems, Red McCombs School of Business, The University of Texas at Austin, Austin, TX;The DuPree College of Management, Georgia Institute of Technology, Atlanta, GA

  • Venue:
  • Decision Support Systems
  • Year:
  • 2003

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Abstract

Millions of dollars change hands daily through online auction markets. However, fraud has been on the rise in these markets. Using a game theoretic approach, we propose a design of an economic incentive mechanism, the trusted third party (TTP), to serve the online auction communities. The proposed model addresses both the economic and technological aspects of online auction transactions by assigning a digital certificate to each participant. Thus, each participant's identity as well as his or her reputation can be established by other market participants. The analytical results demonstrate that when online transactions take place with the assistance of digital certificates issued by a TTP, the most utilitarian course of action for a market participant is to behave honestly.