The Establishment Of The Trust Mechanism Of The Online Auction

Millions of dollars change hands daily through online auction markets. However, by convention sellers collect payment before shipping goods to winning bidders. Since these transactions are anonymous, a seller might send bidders nothing in return for their money. Thus, fraud has been on the rise in these markets, posing serious challenges to people's trust in electronic markets and the health of e-Commerce.The research in online trust mechanism building is at its beginning. Daignault et al. suggest solving the asymmetric problem through various information sources, however he did not further his research. The study in this field is focus on how rational people cooperate in repeated games and the reputation effect on sellers' strategy. Their study does not consider the situation in which traders are bounded rational. In the empirical work on how seller reputation effect on selling price, the sample may be biased.As Diaignault suggested, people can get information from first party, second party and third party due to different sources. First party information, i.e., information via first hand interaction. Second party information, i.e. information from those who has conducted transactions with the same seller. Third party information is the information got from Trusted Third Party.Using game theoretic approach, this work analysis how trust is established through three different information sources. Remove the assumption that traders are rational, this paper use evolution game theory to investigate how traders decisions evoluting under different trust mechanisms. At last, empirical work about reputation mechanism is done based on the data collecting from eBay and "Matheimatica "is used to simulating the evolution process.Through theoretic analysis and empirical work, I got the following conclusions:Since buyer cannot have any information about the seller, the strategy in one short trade in online market is that the rational seller chooses to default and the buyer does not trust him. Even if some traders are bounded limited, the evolution stable strategy remains the same as in "stranger market". When the game can be repeated, there exist an equilibrium, which ensures the seller to behave honestly.If the buyer can get information from those who have done business the sameseller, the reputation effect has importation effect on seller behavior. If seller has continues strategy space, and his return is concave function of his effort level, then the best strategy for him is to choose a stable effort level, which is below the one under complete information. If the seller has discrete strategy space and the buyers are Bayesian rational, the positive feedback bring decreasing marginal return to the seller. It is of best interest to default for sellers who have a high reputation score, however, the times of default is quite limited. In binary reputation systems mentioned above, it does not provide sustained incentives for seller to behavior honestly over time, it can be improved by weighting reputation system.To ensure the online trust and reduce the risk in online business, online auction platform provider encourage people use service provided by Trusted Third Party. Rational trader will make the decision of whether to choose Trusted Third Party after considering the cost and return. This paper investigates the condition that traders choose Trusted Third Party. I also consider the situation when the traders are bounded rational. If most sellers' reputation is relative low in the market, then people prefer TTP, otherwise only part of the trade will use TTP.Empirical work about the reputation system is done by using eBay auction data. Probit Model and Logit Model are used to study the relationship between seller reputation and the sale rate, and our data suggest that positive feedback can increase the sales rate significantly. This research use Sample Selection Model to study the relation between reputation and Price. I found reputation has statistically significant effect on Price. These findings support the conclusions got in theoretic analysis. At last, software "Mathematica"is used to simulate how their strategy evolution when traders have bounded rational.This paper is one of the earliest in online trust building study in China. It investigates rational traders' behavior through various information sources by game theory method. Meanwhile, multi-population evolution game theory is used in this field for the first time. The empirical on reputation mechanism based on eBay data is the first study in this field China. This work is of theoretic and practical importance in online auction trust building.