We have been conducting theoretical research on Internet auctions, in particular, on the effect of a new fraud that utilizes the anonymity available on the Internet. Although Internet auctions have rapidly grown as a popular trading mechanism in electronic commerce, we must consider the possibility of a new fraud in which an agent submits several bids under fictitious names (false-name bids). Detecting false-name bids is very difficult since identifying each participant on the Internet is virtually impossible. Although false-name bids can be a serious problem in Internet auctions, this problem has not been previously addressed.
If we carefully design an auction protocol, we can remove the effects of some frauds. For example, in a standard auction (the first-price sealed bid auction), the highest bidder wins and pays its own bid. In this case, a bidder can profit unfairly by knowing other bidders' bids.
On the other hand, in the Vickrey auction, the highest bidder wins and pays the second highest bid. In this case, knowing other bidders' bids is not profitable and each bidder can maximize its utility by submitting a true valuation, i.e., honesty is the best policy (incentive compatibility). Moreover, the generalized Vickrey auction (GVA) has been developed to handle multiple items with correlated values. The GVA has proved to satisfy incentive compatibility and social optimality, i.e., the sum of all participants' utilities is maximized, when agents do not submit false-name bids.
We have shown that the GVA is vulnerable against false-name bids and proved that no auction protocol exists that satisfies incentive compatibility and social optimality in all cases if agents can submit false-name bids. To overcome this problem, we have developed a new auction protocol that is robust against false-name bids and can obtain semi-optimal allocation. We will keep on contributing to the development of reliable trading mechanisms in electronic commerce by conducting theoretical research on Internet auctions.
Last modified: 23 May 2001