Security and Trust of Online Auction Systems

Abstract

An auction is a market with an explicit set of rules determining resource allocation and prices on the basis of bids from market participants (McAfee & McMillan, 1987). Generally speaking, an auction is the standard means for performing an aggregation of supply and demand in the marketplace to effectively establish a price for a product or service. It establishes prices according to participants’ bids for buying and selling commodities, and the commodities are sold to the highest bidder. Simply stated, an auction is a method for allocating scarce goods, a method that is based upon competition between the participants. It is the purest of markets: a seller wishes to obtain as much money as possible for the commodity offered, and a buyer wants to pay as little as necessary for the same commodity. Traditionally, there are three protagonists in the auction: sellers, buyers, and auctioneers. An auction offers the advantage of simplicity in determining market-based prices. It is efficient in the sense that an auction usually ensures that resources accrue to those who value them most highly and ensures also that sellers receive the collective assessment of the value. Indeed, auctions are conducted in accordance with formal rules for governing market access, trade interaction, price determination, and trade generation (Friedman, 1993). In the case of a traditional physical auction, a seller will choose an auction house based on the service: the form of licensing, the availability of suitable insurance, suitable descriptions and access to the commodities, payment terms, and security of goods before and during the auction process. The buyer or seller needs to come to the market or sends his/her representative.