Cite As: Mary M. Calkins, Comment, My Reputation Always Had More Fun Than Me: The Failure of eBay's Feedback Model to Effectively Prevent Online Auction Fraud, 7 RICH. J.L. & TECH. 33 (Spring 2001), at http://www.richmond.edu/jolt/v7i4/note1.html.
A. How an eBay Auction Works
B. eBay's Economic Incentives: Honesty for Sale Cheap
C. eBay's Legal Incentives: Regulating Just Enough to Avoid Being Regulated
D. Trust and Safety: User Agreement: What Does "eBay is Only a Venue" Mean?
E. Conclusions About eBay's Process and Incentives
A. User Registration Procedures
B. Obtaining a Registered eBay User's Contact Information
C. Conclusions About User Registration
A. How the Feedback System Works
B. The Feedback System's Benefits and Drawbacks, From a User's Perspective
A. Third-Party Service Providers
B. Private Investigation and Netcopping
{1}Online auctions for goods are currently a popular and lucrative
form of e-commerce, but present special problems of trust and
fraud prevention, because most deals involve buyers and sellers
who do not know each other and are separated by distance. Online
auctions for goods have been largely unregulated by formal laws.
For that reason, trust-building and fraud prevention have primarily
been accomplished through creative private regulatory models implemented
by the auction houses themselves.
{2}This Comment examines one popular model, a registration and
feedback system pioneered by the leading online auction company,
eBay. Under this system, a user builds a public online reputation
over time by engaging in a number of transactions and receiving
public feedback from his transaction partners. By checking a potential
transaction partner's feedback file, a user can theoretically
receive information about that party's honesty and trustworthiness,
and make an informed decision about transacting with that person.
However, as this Comment will show, the growth of the user community
has rendered this "community policing" model increasingly
unreliable and unable to prevent bad behavior, although the model
still has some psychological benefits. Therefore, eBay cannot
rely on feedback systems to reliably prevent fraud, and must implement
other forms of regulation (some of which are discussed in this
Comment) or face being externally regulated by government entities.
{3}In the past few years, online auctions for goods have emerged
as a popular new sales form unique to the Internet.[1] Sellers enjoy reaching a wide audience at
a low cost and getting the highest possible price that buyers
are willing to pay. Buyers enjoy the fun and the excitement of
bidding and the potential for finding unique bargains from all
over the world without leaving their homes. Online auction site
operators can also reap great profits with relatively little effort
since their contribution is limited to maintaining the auction
server, and the other transaction costs such as inventory maintenance
and shipping are borne by the seller and buyer.
{4}However, in order to draw customers and inspire consumer confidence,
online auction companies must find ways to prevent fraud and harassment,
and encourage only serious, honest transactions.[2] On the "buy side," the auction
buyer usually cannot personally inspect the seller or the actual
goods. Many sellers are individuals or very small businesses such
as antique dealerships. When these sellers operate outside their
local communities, they may not be subject to the reputational
and legal constraints that govern larger, established businesses.
The nature of the goods being sold frequently collectibles of
uncertain value causes concern about misrepresentation, shill
bidding to drive up the price of an item, and other deceptive
sales practices. Deals usually involve buyers and sellers separated
by distance who complete the transaction by mail, so a dishonest
seller might also take the money and never deliver the goods.
During the past two years, significant increases in the number
of fraud complaints involving dishonest sellers has spurred the
Federal Trade Commission and consumer watchdog organizations to
take up the buyer's cause.[3]
{5}On the "sell side," the auction seller's concern
is to screen out "deadbeat bidders" who back out of
the deal after the auction or bid more than they are able to pay.
Although the most widely reported examples of the deadbeat bidder
problem have involved big-ticket items,[4]
this problem regularly occurs for less expensive items as well.[5]The seller is also concerned
with protecting himself against non-serious bids by unfair competitors
and pranksters. In the real world, a seller could make judgments
based on appearance or demeanor and could invoke control mechanisms,
such as calling police if a customer acted disruptive or failed
to pay. These conventional methods are not available online.
{6}Because interstate (and international) online auctions for
goods have been largely unregulated by formal laws,[6] online auction companies have been free to
come up with creative private regulatory models to promote serious,
honest transactions and build consumer confidence. One popular
method, pioneered by the online auction company eBay, is a registration
and feedback system. New users register with eBay by providing
a certain amount of personal information and receiving a unique
username associated with a public feedback file. At the conclusion
of each transaction, each user posts a short report to her transaction
partner's feedback file indicating whether the transaction went
well. Over time, as a user engages in a number of transactions,
he accumulates comments from many members of the community, essentially
building up an online reputation. By checking these feedback files,
users can receive information about whether a particular buyer
or seller is likely to be a good and an honest transaction partner,
and can thus decide whether to transact with that party. In theory,
a user who conforms to accepted transactional norms will receive
many positive comments, while a user with many negative comments
will be punished by being shunned by transaction partners in the
market. In extreme cases, a formal rule may be invoked to expel
the user from the community. In this manner, the community theoretically
polices itself with little intervention from eBay.
{7}Although this method of self-policing has some benefits, as
eBay has grown from a small community into a huge worldwide business,
this "community policing" model has become increasingly
unreliable and unable to prevent bad behavior. In order to maintain
the culture of trust essential to eBay's current business model,
eBay as the intermediary must take some action to maintain a climate
of trust and avoid having outside regulation, such as federal
law, imposed on its business.
{8}eBay has responded to eroding trust in two ways. First, it
has added some protective mechanisms to its operating code, causing
some forms of dishonest behavior to become mechanically impossible.
However, this code-based regulation is weak because a strong form
of code-based regulation would discourage legitimate users.[7] Second, eBay has attempted
to shift responsibility for the problem by partnering with third
party intermediaries, such as credit card companies, who offer
a stronger and more effective form of market-based regulation.[8] But reliance on third parties
does not absolve eBay of all practical responsibility, and perhaps
not even of all legal responsibility. Moreover, in implementing
stronger controls, eBay must somehow admit that its original trust-based
protective systems have failed without losing credibility.
{9}Part I of this paper provides a brief description of eBay's
operations and incentives, and shows why eBay, despite a legal
incentive to remain passive, must take steps to prevent fraud
to avoid harm to its business. Part II discusses the flaws in
eBay's user registration scheme that shift the burden of fraud
prevention onto the post-registration stage. Similarly, Part III
discusses the problems with eBay's post-registration feedback
model and how it fails to prevent fraud. Although the feedback
system provides some communitarian benefits, especially to well-intentioned
users who plan to be repeat players, effective fraud prevention
is not among those benefits. Part IV briefly discusses the real
ways in which fraud is effectively prevented on eBay: third-party
private solutions and private investigation by cyber-vigilante
users. Part V proposes an alternative scheme for third-party feedback
administration. Part VI concludes by suggesting some ways in which
eBay could improve its handling of the fraud problem within the
bounds of its economic and legal concerns.
{10}eBay, located at http://www.ebay.com,
describes itself as "the world's largest personal online
trading community" that "help[s] people trade practically
anything on earth."[9]
Although it includes big-ticket items such as real estate and
automobiles, eBay is best known as a sort of online flea market
for a vast variety of antiques, collectibles, computer equipment,
used household goods, and junk of every description.[10] Founded in 1995, ostensibly as a site for
the founder's wife to sell collectible Pez candy dispensers,[11] it pioneered the online
auction model and spawned many competitors that imitate some or
all of its features.[12]
The company went public in 1998 and, unlike many other publicly
traded dot-coms, has consistently shown a profit.[13] From 1997 to the present, eBay has undergone
phenomenal growth, expanding from a community of approximately
150,000 users in 1997 to approximately 19 million user accounts
as of October 2000.[14]
On a typical day, several million eBay auctions will be in progress,
covering more than 4,500 item categories.[15]
{11}This section first details the basic operation of an eBay
auction, then discusses the economic and legal incentives that
drive eBay's regulatory schemes and motivate its use of third
parties. As this section will show, although eBay has had incentives
to remain passive up to this point, passivity is not a viable
option in the face of escalating fraud. Therefore, eBay is forced
to take some steps to preserve the economically advantageous atmosphere
of trust and avoid potential legal liability.
{12}The eBay auction process operates as follows. In order to
buy or sell on eBay, a user must first register with eBay through
a web-based process and provide some personal information.[17] The registration process is outlined in more
detail in Part II, infra. Newly registered users choose a unique
username and password, to which is attached an initially empty
feedback file.
{13}eBay makes money by collecting listing fees and commissions
from auction sellers. Most eBay products are sold by individuals
or small businesses such as antique dealerships, to other individuals
or small businesses.[18] A
seller pays a listing fee to put an item up for auction by listing
a picture, description and opening bid in the appropriate eBay
category.[19] Interested buyers may find the item by browsing
the eBay site or by using a search engine. A buyer who wishes
to purchase an item enters her bid electronically on the eBay
site. Each auction runs for a fixed time period, normally several
days; at the conclusion of the auction, the highest bidder is
awarded the right to purchase the item.[20]
The high bidder and seller are expected to obtain each other's
e-mail addresses (and other contact information, if needed) from
the eBay site and complete the transaction on their own without
further assistance from eBay. The buyer pays the seller and the
seller pays a commission to eBay.[21]
{14}At the conclusion of the transaction, each party has the option
to leave a positive, negative or neutral comment, or no comment,
in the other party's feedback file. The feedback process is discussed
in more detail in Part III, infra. This feedback is meant to provide
low-cost information to future potential transaction partners,
so they can better decide whether to transact with the person
in the future.[22]
{15}As a for-profit business, eBay's behavior is primarily
driven by economic incentives. In a nutshell, eBay wants to encourage
many customers, both buyers and sellers, to visit its site and
transact business, resulting in more listing fees and commissions
for eBay. At the same time, eBay would like to minimize its own
costs of doing business, including the costs of operating internal
regulatory systems, meeting externally imposed requirements (such
as laws) and obtaining capital. Regulatory processes such as registration
and feedback must take these economic drivers into account.
{16}In order to make the comparatively new business model of online
auctions credible and profitable, eBay must provide a trading
environment that is trustworthy enough to engender confidence
in users, stockholders, government enforcers and regulators, large
private market "regulators" such as Microsoft and America
Online, and potential business partners. If any one of these groups
lost confidence in eBay, business might suffer as a result, with
eBay losing sales or strategic access and incurring the costs
of self-defense or increased governmental scrutiny.[23] Therefore, eBay strives to provide a default
image of trustworthiness and credibility as well as convenience.[24] In particular, site browsers
must quickly get a positive image of eBay, so that potential customers
will like what they see and want to transact.
{17}First and foremost, eBay's site must communicate an image
of trust. eBay realized early on that many people hesitate at
the thought of transacting with unseen strangers on the Internet,
particularly for collectibles of uncertain value sold in an auction
format. Users cannot see their distant transaction partners, and
must transact through non-rich communications such as e-mail,
telephone calls and viewing photographs of the item. The cheapest
and easiest method of communication, e-mail, may be difficult
to use effectively within the short auction time window, since
each party must wait for the other to respond. Other methods,
such as long-distance telephone calls, are inconvenient and may
be expensive compared with the value of the item at auction. Original
users suggested community-provided feedback to eBay. It allows
eBay to provide some free information and paint an honest picture
with lower cost and less involvement than if eBay itself had to
investigate each user and post an evaluation.[25] Feedback profiles showing many positive
comments also contribute to a trustworthy overall image.[26]
{18}Second, eBay's site must be easy to use and allow new visitors
to quickly start buying and selling. New buyers especially need
speedy involvement in order to make impulse purchases and bid
on auctions that might be ending. Therefore, initial registration,
especially for buyers, must not be burdensome or intrusive. Added
pre-screening is costly and may discourage new users, particularly
those who value their privacy more than the potential value gain
from transacting.[27] If
a new user feels that she must undergo the "third degree"
in order to buy a five-dollar Pokemon toy on eBay, she is likely
to take her business elsewhere.
{19}Third, eBay's site design must be "sticky" it must
keep customers on the site for long periods of time and it must
also encourage repeated visits. Long browsing sessions and repeated
trips are more likely to result in transactions, and also increase
other competitive metrics such as the number of page views.[28] To keep users on the
site, eBay has not only product listings, but additional features
such as online magazines, discussion groups and feedback forums.
To keep users coming back, eBay attempts "code lock-in,"
a technology design that discourages visitors to take their auction
business to a competitor.[29]
Code lock-in is an important consideration in designing features
such as feedback, which is currently not portable to other auction
sites. Once a user goes to the trouble of building up a good online
reputation with eBay through amassing feedback comments, that
user will be less likely to go to a new site where, assuming his
established transaction partners choose to remain on eBay, he
will have to start building an online reputation again from scratch
with new transaction partners. Under this scenario, a collective
action problem arises because all users suffer from the same code
lock-in problem and, barring a mass exodus of many users from
eBay, there is no incentive for any one user to leave.[30]
{20}Fourth, eBay must be responsive to its customers' needs, particularly
those of its sellers. Sellers are preferred because they generate
eBay's fees and commissions, they are closer to the market, and
they act as eBay's eyes and ears in the field. In addition, as
dealers attempting to earn income, they are more likely to be
repeat players than buyers, who might only make purchases sporadically.[31] Therefore, if customers,
particularly sellers, want a specific feature, eBay must take
their desires into account. Customers have played a significant
role in developing the eBay feedback model up to this point, and
are likely to continue to do so in the future.[32]
{21}Potential adverse effects on stock are very important to eBay
management, who not only receive stock as part of their compensation,
but also might lose investors' confidence, as well as their own
money, if the stock drops. Stock is most likely to be affected
by high-profile incidents of fraud, several of which occurred
during 1998 and 1999. In one case, a 13-year-old boy bid on and
won $3 million of merchandise, including a 1955 convertible and
a Van Gogh painting, before his parents discovered his activities.[33] Another mishap occurred
when eBay auctioned for charity a jacket autographed by Katie
Couric, host of NBC's "Today" show. The winning bid
of $200,000, after being announced on the show, was found to be
fraudulent, and the jacket sold for a much lower price.[34] On the sell side, in November 1999, a California
man became the first person sentenced to prison for online auction
fraud as a result of an eBay scam that netted him approximately
$37,000.[35] While these
public humiliations affect investor behavior, ordinary users are
just as likely to depart in frustration over smaller incidents
of fraud occurring on their auctions.
{22}Although economic drivers are eBay's foremost concerns, eBay
also has to take legal and regulatory concerns into account. In
the past eBay has remained as passive as possible in order to
escape legal liability, but increasing regulatory pressure coupled
with legal uncertainty make this strategy risky and untenable
for the future.
{23}Like any Internet business with potentially "deep pockets"
and a large number of users, eBay wishes to avoid legal liability
for anything that might happen on its site, such as fraud, harassment
of a user, or defamation of a user. Historically it has done this
by attempting to stay out of the transaction, and it prefers to
characterize itself as a passive provider, "only a venue"
where transaction partners meet and go about their business.[36]
{24}In taking this stance, eBay appears to characterize itself
as a passive Internet service provider ("ISP") and relies
upon decisions such as Zeran v. America Online[37] and Blumenthal v. Drudge[38] to absolve itself from tort liability based
on the behavior of its active users. In Zeran and Blumenthal,
America Online ("AOL") was absolved of liability for
defamatory statements posted on its service by individual users,[39] despite the fact that,
in Blumenthal, AOL had contracted with the defendant Drudge,
a journalist, to carry his column on AOL's Internet service and
to remove content if it violated AOL's terms of service.[40] The holdings in Zeran and Blumenthal
relied on an interpretation of federal communications law[41] that protected providers from tort liability
based on the actions of its users, on the grounds that a large
provider cannot afford to police the activities of many users
without cutting back on services.[42]
{25}However, the current regulatory environment offers only weak
support for this passive stance. So far, only three circuits have
explicitly adopted the holding of Zeran.[43] Furthermore, most interpretations of Zeran
and Blumenthal read the decisions as exempting service
providers from liability based on the published statements of
their users. It is unclear whether the holdings would protect
the providers when users commit tortious acts that go beyond publishing
defamatory statements. Furthermore, when the liability at issue
involves a broken contract for sale of goods, rather than a tort
such as defamation, the ISP may not be permitted to escape liability
so easily.[44]
{26}It is also questionable whether eBay truly falls within the
policy definition of an ISP. The ISP involved in Zeran
and Blumenthal, AOL, could be seen as providing the societal
beneficial service of low-cost user-friendly Internet access to
U.S. citizens.[45] Internet
access is seen as increasingly essential for purposes of educating
children, gathering information, communicating with others, and
completing work tasks; the importance of this service might justify
limiting AOL's liability for user misconduct, so that increased
liability does not force AOL to cut back service to many subscribers.
By contrast, an online auction house such as eBay might be viewed
as providing a nonessential service. The goods sold on eBay are
not the necessities of daily life; rather, they are almost entirely
lifestyle products, enjoyable but certainly not essential. Therefore,
as a policy matter, eBay might not merit the same protection as
AOL.
{27}In the area of fraud, the government has shown signs of increasing
unfriendliness toward eBay. While in 1999 the federal government
took a "wait and see" position toward Internet regulation,[46] the rapidly increasing
number of online auction fraud complaints[47] has drawn federal regulatory attention
to online auctions.[48]
Several states also recently attempted to enact laws regulating
online auctions.[49] eBay's
posted statement, quoted below, shows the difficulty of maintaining
a passive position:
{28}The eBay user agreement states:
eBay acts as a link between the buyer and seller. We just provide the automated bidding system. We do not authenticate users, we do not verify items, we do not guarantee that you will receive payment or the item. However, we are extremely concerned about our community and your safety within our community. To that end, we work with third parties to offer you services to authenticate users, insure and escrow your transactions.[50]
{29}By going through third parties, eBay probably hopes to
take advantage of existing regulation without exposing itself
to possible new liability or regulation, as well as sending a
message to government that it is trying to do something about
fraud. Some of the third parties, such as Equifax for some user
credit verifications[51]
and Lloyds for free insurance of an item purchased on eBay up
to $200 (with a $25 deductible),[52]
are longstanding brick-and-mortar businesses that are governed
by existing laws covering credit reporting and insurance. However,
other partners such as I-Escrow.com (offering escrow services)[53] are new business models
themselves, with unclear liability, and may not actually relieve
eBay of legal burdens.
{30}The obvious need for additional fraud protection is part of
a larger picture showing the need for increasingly formal regulation
in many areas of a rapidly growing global business. In eBay's
early days, prior to going public, eBay had few formal rules,
and in the absence of law governing eBay's operations, relied
almost exclusively on informal regulation by social norms and
the market.[54] Users who
violated eBay norms, as determined by the feedback reports of
the greater user community including eBay staff, were punished
through market means when other parties refused to transact. The
eBay community also benefitted from the efforts of private users
who engaged in the cybervigilantism popularly known as "netcopping"
by personally investigating and tracking down suspected eBay fraud
perpetrators.[55]
{31}As eBay has grown, extended its territory worldwide, and become
more sensitive to public concerns, it has been forced to implement
stronger, more formal control policies across the board.[56] Large, diverse growth in the eBay community
also tended to disturb the formation and maintenance of group
norms that may have worked well for a smaller community.[57]
{32}Although geographic proximity is not required for norm formation,
shared common interests and interdependence are required.[58] The users on eBay do not share a common
interest. This is due to the diversity of products sold and varying
levels of involvement, from repeat play to infrequent use. In
addition varying roles, including professional dealer, frequent
buyer, and infrequent buyer or seller add to the diversity. Therefore,
in order to avoid an increased number of bad transactions caused
by mismatched expectations, eBay needs to take a greater role
in enforcing some regulation, rather than leaving transactions
up to purely private ordering.[59]
If eBay does not step in, it is likely that formal legal authorities
will increasingly be called upon to do so.
{33}eBay has a strong incentive to stay out of user-to-user
transactions in hopes of avoiding massive liability for fraud
under the holdings of Zeran and Blumenthal. However,
when fraud reaches a certain point, eBay cannot continue to remain
passive without undermining its economic goals. This is not a
matter of eBay having a moral responsibility to promote trustworthy
dealings, but a practical matter that if too many users complain
about fraud, eBay's business will suffer, its reputation and access
to capital may be harmed, and it may be subject to unwanted outside
regulation by federal or state government. In attempting to seek
solutions to fraud, eBay will attempt to balance the need to preserve
its trustworthy reputation against the economic incentives to
keep the site open to as many users as possible and the legal
incentive, provided by Zeran and Blumenthal, to
remain as passive as possible. The difficulty of this situation
suggests that Zeran and Blumenthal may provide an
inappropriate incentive for providers, such as eBay, who are not
just providing a vehicle for allowing outside parties to engage
in speech, but are actually facilitating some nonessential non-speech
action in this case, economic transactions for non-necessities
between users.
{34}In attempting to ensure an honest and well-mannered user
community, eBay's first potential challenge is registration for
new users. The desire to sign up as many users as possible conflicts
with the goal of screening to ensure that all users who join will
be trustworthy. In striking a balance between these concerns,
eBay has chosen to encourage as many registrations as possible,
and address registration abuse through weak code and market solutions.
As a result, user registration, while no doubt serving eBay's
business billing and data-gathering purposes, is largely ineffective
as a means of pre-screening new users or preventing banned users
from returning. Thus, most regulatory burden is shifted onto post-registration
control systems such as the feedback forum and private third-party
solutions. Post-registration control systems are further burdened
by the ease with which malicious users can register anonymously.
{35}The first part of this section details eBay's registration
procedure and demonstrates how it fails to adequately screen users
at the initial stage. The second part discusses eBay's system
of maintaining user contact information and how lack of anonymity,
while in some ways contributing to an atmosphere of trust, exposes
"good users" i.e., repeat players to risks and harassment,
while permitting "bad users" to misbehave in the short
term due to lower stakes.
{36}The original eBay registration system allowed any user to
sign up for an account without providing verification of his identity.
There was no pre-screening of new users, unless they had recently
been suspended under the same name and contact information. As
a result, the entire burden of controlling abuses fell on the
post-registration stage. When eBay finally determined that some
type of control should be placed on registration, it chose a weak
code and private third party solution that can be easily circumvented
by users bent on fraud.
{37}The current system works as follows. In order to buy, sell,
or use features on eBay, a user must first register at eBay's
web site and provide eBay with a name, mailing address, telephone
number, and e-mail address. An e-mail confirmation is sent to
ensure that the user's e-mail is working. The registered user
chooses a unique username, which is usually anonymous (although
some choose to use their real names or e-mails), and a password.[60]
{38}The new eBay rules differentiate between sellers and buyers,
with sellers required to give more personal information. If a
registrant wishes to sell items on eBay, she must also undergo
identity verification, preferably by providing a valid credit
card number to eBay. Alternatively, if the user does not want
to provide a credit card, she can select the more difficult and
time-consuming option of having Equifax, a third-party credit
reporting agency, verify identity based on a credit report.[61] The verification rule
is meant to screen out minors, pranksters and fraud perpetrators.[62] Providing the credit
card number also allows eBay to charge the card for listing fees
and commissions.
{39}Buyers can still register and bid on most eBay auctions, with
few exceptions, without providing a credit card number, and the
vast majority of sellers will also accept money orders and/or
personal checks for payment.[63]
eBay does require a credit card number if a user registers with
a free e-mail address. Although this feature is not widely publicized
on the website, in fact, the requirement does not even appear
until the user is several screens into the registration process,
thus making it less likely that he will not finish.[64]
{40}Users wishing to buy and sell can either use the same account
for both, or use one account for buying and another (with different
user ID) for selling as long as the two accounts do not interact.
A seller is not permitted to shill bid on his own auctions using
his buying account.[65]
{41}If a registered user is caught seriously violating eBay policy,
the ultimate sanction is revocation of the user's registration,
known as NARUing the user, which expunges the user's account and
bans the user from bidding, selling, or using other features at
eBay. NARU stands for "not a registered user."[66] Users are generally NARUed only after their
violations are reported to eBay by other users, since eBay does
little or no policing of individual accounts. NARUed users are
theoretically not permitted to return, but in reality are able
to open new accounts if they use different identifying information.
{42}While this registration scheme could theoretically screen
out some pranksters and fraudulent sellers, it is a weak protection
against fraud. Clever fraudulent users, particularly bidders,
can get around the screening requirements. Some ways of beating
the system might include registering for a buyer account that
does not require a credit card, in order to engage in fraudulent
acts such as shill bidding; using false information, such as the
name and credit card number of a relative or friend; or engaging
in forms of fraud that are not visible to your transaction partner,
such as selling stolen goods. These fraudulent acts are compounded
by the fact that most transaction partners are located at a distance
from each other in different jurisdictions, creating barriers
to effective private investigation and enforcement.[67]
{43}In making this decision, eBay probably considered the economic
costs of requiring users to provide extra information, since eBay
has an economic incentive to sign up as many users as possible.
From an economic standpoint, it is likely that new sellers will
agree to give some additional personal information in return for
using eBay's established brand-name site to make money. Sellers
are planning to establish an ongoing business relationship with
eBay anyway, and may like the convenience of paying eBay with
their credit cards. An alternative verification procedure is available
if sellers do not want to give eBay their credit card number.
{44}New buyers, upon registering, are less likely to give eBay
a credit card number, since they are not transacting directly
with eBay. They may also feel that being asked to give personal
credit information to eBay in return for the chance to bid on
a collectible (and, if they win, to pay the seller directly rather
than paying eBay) is not a worthwhile trade. Therefore, eBay limits
the amount of screening required of buyers and buries the screening
procedure in the registration process or uses code so buyers will
be less likely to resist. And while credit cards may be required
to cover buyers using some well-known free e-mail services, it
is unlikely that eBay can identify every small, free e-mail provider,
nor does it wish to screen that many buyers. While eBay may have
made a correct evaluation of the buyer privacy tradeoff, obtaining
a bogus buyer account is still fairly easy.[68]
{45}Although auction sites including eBay generally claim that
registration abuse is not a problem,[69]
abuse incidents have nevertheless been documented.[70] The ease of obtaining an account, particularly
an unverified buyer's account, technically facilitates the creation
of bogus accounts for fraud, harassment, and retaliation. Depending
on what scheme a user is attempting, he might even sign up for
multiple accounts, perhaps keeping one account for "good"
purposes such as transactions, and using other accounts for "bad"
purposes (or for the questionable purpose of "netcopping"
- investigating other users while masquerading as a legitimate
user). With 10 million active accounts, eBay is unlikely to incur
investigation costs to find bad actors, at least until bad behavior
is reported by a victim or netcop.[71]
{46}The lack of control at this stage continues to place a greater
burden on post-registration policing methods, including community
policing methods such as the feedback forum. It is noteworthy
that eBay instituted the credit card or equivalent as the strongest
requirement, and a less convenient credit check for only those
users (sellers) who pay eBay directly. When its own pocketbook
is involved, eBay recognizes the superiority of existing regulatory
systems, such as credit checks, over its own community policing
models to weed out sellers who do not pay. However, while the
credit card requirements may discourage some malicious sellers
(and a few fraudulent bidders in certain categories), the prevalence
of credit card fraud in the U.S. suggests that a malicious user
will be able to easily supply a fraudulent credit card number.[72]
{47}Any registered user can easily obtain the contact information
of another registered user. This is normally done when a potential
buyer wishes to contact a seller to get more information about
an item up for auction, or when an auction has concluded and the
winning bidder and seller need to contact each other to complete
the transaction. However, a user's contact information may also
be obtained outside the context of a transaction if another user
suspects him of fraud, wishes to send him spam, or wishes to harass
him.
{48}Requests for contact information are built into the site code.
To obtain an e-mail address, a user simply enters his password
and views the e-mail addresses of other users on the eBay web
site.[73] To obtain additional
contact information, such as a name, mailing address and phone
number, a user normally sends an e-mail request to the e-mail
address he obtains. Alternatively, a user can request another
user's full contact information directly from eBay via an automated
procedure known as "pulling contact information," causing
e-mails to be sent to both users containing both parties' full
contact information. (Note that this information is limited to
name, address, phone number and e-mail address. Credit card numbers,
if on file with eBay, are not released.) Pulling contact information
is intended for situations when attempts to contact a user by
e-mail have failed, or when there is some doubt about a transaction
partner's identity.[74]
The dual e-mail serves to inform the target that the requestor
has pulled his contact information, but since the information
is also disseminated to the requestor by the dual e-mail, the
target cannot prevent the dissemination from occurring; he can
only complain after the fact.
{49}eBay's poorly controlled dissemination of a user's personal
contact information the name, address and telephone number associated
with a particular user ID to other registered users effectively
destroys any anonymity or pseudonymity[75]
provided by the user ID.[76]
This means that all actions taken by a user, including leaving
feedback comments, are essentially done in the public eye, unless
the user obtains private market security or lies to protect himself.
Since dissemination of user contact information is not restricted
to transaction partners, a legitimate user basically consents
to publicizing the registered name, address and phone number associated
with his user ID to all other registered users on demand, including
many with whom he did not choose to transact, thus widening the
pool of potential harassers.[77]
In fact, one might say the user has consented to disseminating
this information to the general public, since anyone can quickly
register for a buyer account (perhaps using a false identity),
immediately pull contact information, and the targeted user cannot
object until after the fact.
{50}Even when the target does object, the ultimate penalty is
unclear. Although eBay limits the purposes for which a user can
use another's personal information,[78]
any evaluation of purpose still occurs after the fact after the
data has already been disseminated. Since e-mail notification
is sent to the target after contact information is pulled, merely
pulling contact information can act as a veiled threat, even if
nothing is done with it. Moreover, eBay's website states that
contact information may be used for "matters regarding eBay,"[79] or "eBay-related
communications that are not unsolicited commercial messages,"[80] terms that are broad
and vague enough to cover a multitude of questionable uses, at
least in early stages.
{51}At first glance, providing contact information on demand appears
to be reasonable because it is expected that transaction partners,
having chosen to transact, will not be anonymous to each other.
Rather, they will exchange personal contact information[81] to facilitate mailing payments and goods
to each other. It also makes eBay appear more honest since, theoretically,
no one is permitted to transact anonymously. Furthermore, anonymity
and pseudonymity have little value in a transaction context concerned
with protecting other parties from harm caused by a user's actions,
rather than emphasizing the user's freedom of self-expression.[82]
{52}However, a user who plans to commit questionable acts and
is only going to remain on eBay long enough to carry out his plans
has little incentive to provide correct contact information.[83] This "bad user"
may well lie and take short-term advantage of "good users"
who are truthful because, as repeat players, they have a large
stake in appearing honest.[84]
Under the current scheme a bad user who has already taken pains
to disguise his identity for purposes of committing bad acts has
nothing to lose, but a good user who might be subject to harassment,
reputational harm, or business loss does. As the next section
will show, this risk influences the willingness of good users
to take part in post-registration community policing schemes.
{53}Alternatively, good users might try to disguise their identities
or take advantage of private market security such as P.O. boxes.
However, they then run the risk of being thought untrustworthy
by the community and suffering sanctions as a result.[85]
{54}It should be noted that e-mail addresses receive even less
protection than contact information.[86]
E-mail addresses can be viewed simply by entering a registered
user password, with no notification given to the owner of the
address. This is less of a concern for several reasons. First,
e-mail addresses, unlike personal names, addresses, and phone
numbers, are widely disseminated on the Internet, and e-mail through
a reasonably anonymous Internet service is widely available at
little or no cost. Therefore, eBay's low level of e-mail protection
is commensurate with the Internet in general. It is also desirable
to have e-mail be easily available to potential transaction partners
to avoid resorting to more costly and intrusive means of communication,
such as telephone calls and personal visits. However, the easy
availability of e-mail suggests even more strongly that other
personal contact information should receive more protection than
it currently does.
{55}As shown above, eBay's user registration scheme provides
only a bare minimum of user screening, thus shifting most of the
regulatory burden onto post-registration forms. Bad users will
likely find ways to register and remain on eBay until their bad
acts are either reported by other users or impact eBay directly
(in the case of sellers who fail to pay eBay's fees). Moreover,
by requiring a credit card or similar verification for those users
(sellers) who pay eBay directly, eBay tacitly admits that its
own post-registration protections, such as the Feedback Forum,
are inadequate.
{56}Furthermore, while eBay's public dissemination of personal
registration information appears to promote an honest and open
atmosphere, it actually exposes good users to harassment risks
if their behavior angers someone. Good users who depend on the
community's trust for their repeat business must transact in the
public eye, unlike bad users with short-term malicious agendas.
By contrast, bad users with bogus accounts and a short-term focus
have little or nothing to lose. As the next section will show,
risk of harassment influences the behavior of good users at the
post-registration stage. Keeping this atmosphere in mind, we turn
to the discussion of the second stage of consumer protection--eBay's
feedback forum.
{57}The Feedback Forum is one of the most discussed and copied
aspects of eBay. Commentators are fascinated with the Forum because
it theoretically provides a means of overcoming the anonymity
inherent in transacting on the Internet. It has been hailed as
a triumph of community, and a means of creating cooperation in
an unpromising setting.[87]
The Feedback Forum does provide positive rewards such as motivation,
learning and encouragement to users with inherently good intentions.
However, over time, it has grown into a complex system prone to
collective action failures and fraught with indiscretion. Therefore,
at least where negative comments are concerned, it is a far cry
from the simple ratings system promoted by eBay. It is not a strong
means of preventing fraud or even dissatisfaction, and hence must
be backed up with other methods of regulation.
{58}This section first describes how the feedback system works,
including recent rule and code changes meant to strengthen the
system against abuses. (Note that the mere description of its
operation goes on for some paragraphs, thus providing the first
hint that this system is not so simple after all.) Next, user
benefits from the feedback system, including low cost, flexibility,
ease of use, and psychic benefits are analyzed. Finally, drawbacks
to the feedback system are discussed, the first and foremost being
that the system does not prevent fraud. It also does not permit
easy appeals, is not portable to other contexts, discourages truthful
negative reporting, and is governed by complex, unwieldy norms.
{59}Early in its existence, eBay realized that users would
be wary of doing business with far-away individuals whom they
do not know. Therefore, eBay created a feedback system that allows
users to post short, public reports on their transaction partners
after each transaction.[88]
Currently, the feedback system operates as follows--each registered
user automatically gets a feedback file, starting with no comments
and a value of zero. Thereafter, when users, for example, Ann
and Bob, complete a transaction with each other, Ann has the option
of leaving a feedback comment for Bob, and vice versa. Ann and
Bob can also choose to leave no comment, although eBay strongly
encourages users to leave feedback through exhortations on the
site,[89] code features,[90] and rewards for good
feedback levels that inspire users to push their transaction partners
for positive feedback.[91]
{60}If Ann chooses to leave a comment for Bob, Ann may do so by
entering her own user name and password, the user name of the
target (Bob), and the transaction number of the auction which
the two completed. Ann then checks a box indicating a positive,
negative, or neutral comment, and types the text of the comment
for Bob. The comment, dated and marked with Ann's user name, then
appears in Bob's publicly viewable file. The feedback entry pages
contain warnings that feedback, once left, cannot be removed,
that the feedback leaver is responsible for his own words, and
that the feedback leaver should make an effort to work out differences
first and then think carefully before leaving negative feedback.[92]
{61}The comment is meant to give other users a sense of what it
is like to transact with the other party, and many users prefer
that it discuss the transaction.[93]
A typical positive comment might be, "Item as advertised,
shipped promptly, pleasant seller, would buy from again."
When leaving a negative comment, the feedback leaver is expected
to calmly state the grounds for the negative comment in order
to be credible, although the feedback system does not force him
to do so. Neutral comments are regarded by experienced users as
constituting "weak negatives" indicating some displeasure
with the transaction. Therefore, users dislike receiving neutrals,
even though their feedback ratings are not affected by them.[94]
{62}A user's feedback profile consists of three items, all of
which can be viewed by any site visitor, not just registered users:
the list of comments a feedback rating calculated by giving each
positive comment by a unique user +1 point, each negative comment
1 point, and each neutral comment 0 points and summing the points;
and a star icon "award" whose color changes at different
levels of feedback rating (ranging from yellow for +10 to a "shooting
star" for +10,000). Repeat transaction partners can leave
additional comments, but only one positive comment by each unique
user name can count towards the numerical rating.
{63}If the feedback rating reaches 4, the user's account is automatically
suspended.[95] However,
since the rating is calculated as a sum of all comments, more
than 4 negatives will be required to reach 4 if the user has one
or more positives. Therefore, users with the same rating can have
different feedback comments. For example, a rating of +50 can
mean 50 positives and no negatives, or 100 positives and 50 negatives.
Obviously, a user with a significant number of positive comments
would have to get many negative comments before being suspended.[96]
{64}eBay has also instituted a special feedback rule for dealing
with "deadbeat bidders" those who bid and win the auction,
then fail to pay for the item. eBay states that when a bidder
fails to pay, and the seller requests a refund of the commission
paid to eBay, eBay will sanction the deadbeat bidder and may suspend
him.[97] However, any negative
feedback comments received by a deadbeat bidder regarding his
failure to pay will not count towards the 4 score required for
suspension of the bidder.[98]
{65}Because of this, the rating's information is incomplete, and
eBay advises users to view the text of the feedback comments.[99] However, to do this the
user must take time to load the comments and scroll through them
on the screen, which typically displays 25 comments at a time.
Thus, a relatively small number of comments, for example 100 comments,
would require the user to load, scroll, and read four pages of
comments. Regular sellers usually build up even larger feedback
files, containing several hundred or even several thousand comments.
It is difficult to isolate comments of a specific type, such as
all the negatives.[100]
eBay has repeatedly refused to provide this capability on the
grounds that it wants users to see negative and neutral comments
in context.[101]Therefore,
it is likely that some users will rely only on the rating and
perhaps view a few recent comments, without taking the time to
scroll through many pages of comments.
{66}Even though most users with negative comments will not be
suspended from eBay, the community possesses the ability to penalize
users with negative comments. eBay allows sellers the right to
cancel bids made by buyers with negative feedback. Additionally,
eBay permits buyers the option to bypass auctions listed by a
seller with negative feedback. Most eBay users strongly dislike
getting even one negative feedback, even if they receive many
positive comments to balance the effect.[102]
{67}Early in 2000, eBay instituted the code-based requirement
that all feedback relate to a transaction between the parties.
The feedback software forces all feedback leavers to enter the
number of a closed, completed auction transaction involving their
partner. The number is good for one feedback, and if a valid number
is not entered, feedback cannot be left.[103] In this manner, eBay eliminates non-transactional
feedback, which typically consists either of personal comments
from friends and enemies (e.g. "You're a great person and
a true friend!"), or comments based on commercial transactions
outside of a completed eBay auction (e.g. "I have bought
from this seller many times at his store and I recommend him").
Prior to this change, eBay offered a variety of rationalizations
for non-transactional feedback, including that it helped to build
a sense of community - people who were nice and helpful outside
the context of a transaction could also earn rewards - and that
it allowed customer support staff, who do not transact, to earn
positive comments.[104]
{68}However, non-transactional feedback also posed serious problems.
First, many users did not wish to base their transaction decisions
upon feedback that did not address the potential partner's performance
in a past eBay transaction.[105]
Second, the ability to leave literally any comment on eBay encouraged
harassment, often on non-transactional subjects such as political
views or sex. Finally, non-transactional feedback encouraged "feedback
padding," a scam procedure by which a user built up a false
positive rating by soliciting comments (often worded to sound
transactional, although no transaction took place) from relatives,
friends, bogus accounts started by the same user, and other users
who agreed in advance to exchange positive feedback without going
through a transaction.[106]
Under pressure from many users and faced with reports of feedback
padding (including a highly publicized "feedback padding
party" that involved exchanges of feedback "gifts"
between approximately 140 users in December 1999), eBay finally
changed its code to force all-transactional feedback.[107]
{69}Originally, eBay policy also stated that the company would
not remove any feedback. Presumably, many positive comments outweighed
an isolated negative comment, and it would not pose a major issue.
Receiving a negative comment provided an incentive for a repeat
user to participate in several positive transactions to "bury"
the negative, while at the same time generating revenue for eBay.
As eBay grew, however, the non-removal policy caused concern as
more users received harassing comments. At that time, allowing
non-transactional feedback compounded the problem, causing some
users to receive negative comments from non-transacting parties.[108] Several high-profile
incidents of feedback harassment occurred in connection with heavily
advertised auctions running as publicity stunts near the time
of eBay's initial public offering.[109]
Pressure from users forced eBay to establish guidelines and take
an active role in removing feedback that crossed the line.[110]
{70}Under the new policy, eBay will only remove feedback in a
few specific situations. According to eBay rules, feedback will
be removed at a user's request under the following circumstances:
if it has no connection to eBay transactions; advertises another
auction service; contains links; contains vulgar or profane language
or adult material; contains personal identifying information;
claims (rightly or wrongly) that the user is being investigated;
is proven by the feedback composer (not the target) to have been
left for the wrong party; was left by a user who cannot be reached
through his own contact information; or is found to be part of
a multi-feedback harassment campaign by one user.[111] If none of these circumstances apply,
eBay requires a court order to remove feedback.[112] For all of these situations, a user must
e-mail a complaint to eBay's reporting system, as eBay does not
check feedback.[113]
{71}Comments falling outside the above categories, including accusations
of fraud or dishonesty, remain in the user's feedback file permanently
and do not expire. For example, if Ann leaves a negative comment
for Bob, his options include responding on a special response
line, as well as leaving his own negative comment for Ann. Although
users have asked for a way to indicate or "tag" these
"retaliatory negatives," eBay has not implemented this
feature. Thus, leaving a negative comment carries the expectation
of receiving a negative comment in return.[114]
{72}All feedback is normally visible to the general public, including
persons who are not registered with eBay. eBay allows users to
exercise the option of making their feedback file private (viewable
only by the user, who may then choose to send the comments to
others), but this is discouraged both by the user community and
by eBay. Private feedback results in the likelihood of provoking
distrust and discouraging bids. Since most users use public feedback,
the eBay community views a person utilizing private feedback as
untrustworthy.[115] A
user could overcome this negative perception through a well-known
and honest reputation in the eBay community.[116] Some users attempt to diminish this problem
by offering e-mail explaining why the feedback is private. But
potential transaction partners, who manage to overcome their initial
distrust from the lack of public feedback, must still go through
the extra steps of sending e-mail and evaluating its explanation.
The likelihood also exists that eBay, besides noting the negative
effect of community distrust on sales, realizes that if all or
most users made their feedback private, the feedback forum would
lose much of its advertising and site stickiness value. Therefore,
in an attempt to reduce the use of private feedback, eBay encourages
its users with these words:
You will find that your Feedback Profile is a valuable asset at eBay, helping you earn the trust and respect of fellow eBay participants. By making your Feedback Profile private, you may be jeopardizing other eBay participants' desire to conduct business with you. We strongly encourage you to consider this carefully when making the decision to make your Feedback Profile private.[117]
B. The Feedback System's Benefits and Drawbacks, From a User's Perspective
{73}The feedback system presents obvious benefits to eBay,
the company. First, feedback advertises to the world that people
transact on eBay. Hundreds or thousands of feedback comments suggest
many repeat transactions, and spell success.[118] To the extent that most comments are
positive, the world views eBay as a self-policing community, intolerant
of fraud, and used by honest people. As discussed in the beginning
of this paper, large feedback files also benefit eBay through
site stickiness and code lock-in, thus keeping traffic on the
site.
{74}But all of these benefits help the company, not the user.
The individual user needs a different framework. Aside from receiving
an initial, and possibly false, sense of security, the individual
user does not benefit from the "big picture" that shows
many past positive transactions. The user's main focus concerns
the one transaction he wishes to make and the few past transactions,
primarily those involving the user's potential partner, that might
provide relevant cost-effective information about the current
transaction. Therefore, feedback only assists the user if it both
relates to the current transaction and provides accurate information
at a reasonable cost. In addition, the public feedback system
contains psychic components unrelated to transactional information,
particularly since online auction users often bid for one-of-a-kind
collectibles containing emotional value.[119] This section will first evaluate the
benefits of the feedback system to users, followed by its drawbacks.
{75}Users obtain two primary benefits from the feedback system.
For most transactions, feedback offers an easier, more cost-effective
mode of protection than other alternative forms of protection,
such as credit checks. Second, positive feedback provides some
psychological benefits, especially for repeat players.
{76}A comparison between feedback and the alternative forms
of protection, credit reports and credit card checks, aids in
evaluating feedback from the user's perspective. Both feedback
and credit checks achieve the same purpose of providing assurance
about a transaction partner's integrity. The lower costs, flexibility
and informality, however, distinguish eBay's feedback reporting
from credit reporting. For this reason, the informal procedures
better suit the sale of lower-priced goods on eBay. If eBay did
not utilize feedback reporting, the costs of reporting through
normal channels might prevent the exchange of any information,
resulting in a lack of trust and an unwillingness to enter into
online auction transactions. Therefore, feedback produces the
benefit of allowing low-cost information exchange which in turn,
facilitates low-dollar transactions.[120]
{77}The first difference between feedback and credit checks is
one of publicity and type of information. Feedback is public and
can be viewed online at any time, by any person, for free. Although
a certain amount of personal information is available to other
registered eBay users (who, as described in part II, supra, can
pull contact information to see the identity of a particular user
name), the amount of personal information is limited to name,
address, telephone number, and e-mail, and can be obtained for
free.
{78}On the other hand, credit reports are private, and their owners
are very concerned that there is no wide dissemination of the
reports, especially online, because they contain large amounts
of personal and financial information.[121]
Obtaining a credit report also involves costs, both in paying
fees to view a report or verify a credit card, and in following
the established procedure for doing so.[122] Simply accepting payment by credit card,
which ensures that the credit company will authorize the charge,
requires a seller to have a merchant bank account and incur additional
fees and risk.[123] Requiring
a credit card for every transaction would also decrease the eBay
user pool, because many users either do not have a credit card
or do not feel comfortable giving card numbers to strangers on
the Internet.[124]
{79}Based on this comparison, informal feedback is more suitable
for eBay because transaction partners are unlikely to favor using
credit cards or credit reports on a wide scale. For the average
sale involving an inexpensive, used collectible, the cost to the
user of disclosing private information would probably outweigh
the benefit of the purchase. Even only mandating credit cards
would exclude some users from the eBay pool, those who do not
have or do not wish to use credit cards. Therefore, credit reports,
and even credit cards, will not generally be a viable option for
general user-to-user verification on eBay, although these methods
may be appropriate for a few select transactions.[125]
{80}Feedback can be reported by any transaction partner (formerly
any registered user), and although eBay has implemented more formal
rules than it once applied, there are still only a few rules governing
feedback postings. eBay and the user community might suggest that
certain informal procedures be followed such as expressing a preference
for feedback describing a transaction or attempting to work out
a sale with a partner for some time before leaving a negative,
but these procedures are not binding. A user can leave negative
feedback for any transaction-related reason at any time after
the transaction, although leaving a negative comment that is not
well founded might make the leaver look worse than the target
in the eyes of the community. Users can also report many forms
of transaction-related conduct, including bad debts and other
transaction issues such as rudeness and slow service.[126]
{81}By contrast, only certain entities can report bad debts to
credit reporting agencies, and are required by law to follow strict
procedures for trying to resolve the debt and for reporting it.[127] Furthermore, only
bad debts can be reported. It is not possible to report to a credit
agency that you were unhappy with a customer's attitude or a seller's
inadequate shipping container.
{82}Based on the criteria of flexibility and cost, feedback is
better suited to eBay than credit reporting. It would be difficult
and costly for eBay to enforce strict reporting procedures on
their thousands of small, individual mail-order transactions.
Forcing a strict, costly procedure would result in less available
information and possibly fewer transactions. Furthermore, credit
reports and credit checks are primarily concerned with payment
for goods and do not take service variables, such as payment method,
communications, and shipment, into account. Because many eBay
users are not full-time businesspeople, and are buying and selling
informally rather than through a streamlined service process,
they may have specific customer service expectations, and feedback
allows customers to easily communicate about these expectations.
{83}Feedback also offers psychological benefits to its user.
Feedback leavers are able to express their feelings in a public
forum they get a chance to vent, positively or negatively, for
the world to see. Feedback also gives users the feeling, whether
true or not, that they have some control over the transaction
situation (i.e., by reading feedback comments, they can
avoid getting "ripped off"), and over their transaction
partner's behavior. According to a study by the Online Auction
Users Association, 76 percent of sellers surveyed, and 86 percent
of buyers, listed the ability to rate the transacting party as
the most important criteria in choosing an auction site.[128] This is important because the Internet
is not a rich medium, and people cannot exert control in normal
ways, like making judgments based on a person's physical appearance
or expressing anger in person.[129]
{84}Feedback also helps improve service quality in borderline
cases by telegraphing community expectations. For example, a user
sees feedback praising others for fast payment and decides that
she, too, will pay quickly. While a user bent on committing fraud
is unlikely to find feedback a deterrent, a good user who just
needs extra encouragement to improve, ship faster, communicate
with partners better, or improve her listings to get higher bids
may get that encouragement from feedback. This prevents a user
from skimping on service online, when the transaction partner
is separated by distance.[130]
Telegraphing expectations through feedback is also important in
the context of eBay specifically, because online auctions are
a new business model and "newbies" must learn the norms
of use.[131]
{85}Feedback provides a low-cost reward for users who meet the
expectations of the community.[132]
eBay also has some grounds for identifying the most committed
users and rewarding them through publicity or incentive programs.
(As discussed in the next section, the emotional downside to this
is that users who receive an unfair comment have no recourse and
are apt to feel very unhappy because so much importance is placed
on maintaining a spotless reputation.[133]
{86}Finally, the presence of feedback helps build a trustworthy
atmosphere, which is important not only to eBay's public image,
but to the comfort level of its users. Many of the collectibles
and unique goods sold on eBay have emotional connotations for
the transaction partners, and many of eBay's users are not seasoned
business professionals. The lack of anonymity and the friendly
atmosphere engendered by glowingly positive feedback encourages
users to feel comfortable.[134]
{87}The eBay feedback system benefits users by providing an
inexpensive, flexible, easy-to-use means of getting information
about a potential transaction partner. It also provides good intentioned
users with psychological benefits, making them feel more comfortable
and in control, and instructs new users on how best to behave.
{88}Despite the financial and emotional benefits for some users,
the eBay feedback system also has a number of drawbacks. First,
it is ineffective at preventing fraud and other abuses, particularly
given the ease with which a person can abuse the registration
scheme. Second, it suffers from collective action problems, thus
fostering a "good news only" reporting policy on the
part of users and the posting of incomplete information. Third,
it lacks some of the benefits of credit reporting, namely procedures
for challenging unfair negative comments and portability to other
similar venues.
{89}While the feedback system may inspire an improved level
of customer service for "good" users, it is unlikely
to prevent fraud if a user is determined to act badly. Obviously,
a bad user is disinclined to care what the community thinks of
him.[135] But in addition,
the long-term nature of the system allows a user to register,
commit fraud, and disappear with the profits before bad feedback
appears in his file. Another method of committing fraud is to
register and perform on a certain number of legitimate transactions
in order to acquire good feedback, perhaps by buying or selling
low dollar amount items, before committing fraud on big-ticket
items.[136] Although
some users may refuse to transact with new users having zero or
low feedback, it is likely that with 10 million users, some "suckers"
will be found. There are also many ways of committing fraud, such
as buying items on a stolen credit card and reselling them on
eBay, that are unlikely to be detected by transaction partners,
who will then leave positive feedback.
{90}A user may also commit fraud using the feedback system itself.
"Feedback abuse" is committed when a user has friends
with accounts pad her feedback with positive comments, or does
so herself through multiple accounts all owned by her (which are
technically forbidden). Although eBay's new insistence that a
transaction number be entered to leave feedback makes padding
harder, it is still possible to get transaction numbers by holding
sham auctions and not actually completing the transactions. The
only difference is that eBay will now receive fees for the sham
auctions as well, but which are still relatively low for inexpensive
items. After amassing a good feedback file based on the cheap
items, the fraud perpetrator can pull off scams involving expensive
items or simply enjoy the community benefits of having high feedback.
{91}An example of how easily fraud perpetrators can get around
the feedback system is shown by the file of an eBay user named
"kuchar1," the subject of a successful fraud probe by
California law enforcement, featured in a recent article.[137] This user's behavior was clearly suspect.
Despite listing an address in Union City, California, the seller
asked users to wire payment for items to a bank in Latvia.[138] (After mailing payment,
users then received notice that their items had been charged to
a credit card account in their own name, forcing them to either
pay a second time or return the merchandise.[139]) Yet even this seller managed to garner
a feedback rating of +4, with six positive comments (five of which
were left by unique users and linked to a completed transaction)
and only one negative before being suspended.[140] Although many eBay users might be dissuaded
from transacting by the single negative, it is likely that some
would have decided to ignore it and been defrauded as a result.[141]
{92}Therefore, while feedback might give information about a transaction
partner's habits, such as fast or slow payment or shipment, and
might weed out some lazy or prank users, a user determined to
commit fraud will not be deterred by the feedback scheme. Furthermore,
since the eBay system encourages positive comments and discourages
negatives (as discussed in the next section), a user might actually
evade negative feedback for some time while engaging in undesirable
practices.
{93}The eBay system's code design and social norms can discourage
users from posting honest negative comments. If Ann and Bob engage
in a transaction, and Ann is dissatisfied, she may wish to post
negative feedback for Bob. However, she faces a number of obstacles
in doing so.
{94}When Ann goes to the eBay feedback page, she will see several
warnings: that she is responsible for her own words; that eBay
cannot take responsibility; that she should be careful about making
libelous or slanderous comments; that she might need to contact
her attorney; that once a comment is left it cannot be removed;
and that she should try to work out her differences with Bob before
leaving a negative.[142]
Therefore, she is made aware that making a negative comment is
very serious business and may have consequences. If Ann is not
in the habit of leaving negatives, seeing warnings about attorneys
in an unfamiliar context such as the Internet might scare her
away from doing so.[143]
{95}Furthermore, if Bob already has overwhelmingly positive feedback,
Ann is unlikely to want to leave a negative. Because most feedback
left on eBay is glowingly positive and associated with one's reputation,
negatives are highly disdained by the community, and most good
users are upset about getting their first negative comment or
even their first neutral.[144]
Fear of doing the wrong thing in the eyes of the community (especially
if Bob is a "popular" user with many positive comments)
might cause Ann not to leave negative feedback. Along these lines,
it is not uncommon for users contemplating leaving negative feedback
to go to a discussion board, give the facts of a transaction,
and ask the other board members if, in their opinion, the transaction
partner deserves a negative. While this builds community to some
extent, it might also create a collective action problem by causing
genuinely dissatisfied persons to bury their feelings and go along
with the group's decision.[145]
{96}Ann also knows that leaving a negative for Bob will, at the
very least, probably earn her a retaliatory negative in return,
and she may lack incentive to risk having her own feedback record
tarnished. (Of course, if Bob has already left Ann a negative
comment, she will have fewer qualms about responding in kind;
also, if Bob has left Ann a positive comment, she may feel moral
pressure not to "neg" him.) Given the strong desire
of most users to avoid negative blots on their reputations, Ann
will have to feel very strongly about the bad transaction, or
else have nothing to lose - perhaps Ann is not a repeat player
and only uses eBay once a year, or perhaps Bob has already left
the first negative - before she will make a negative comment.
{97}Furthermore, if Ann is an experienced eBay user, she knows
that her negative comment will be publicly posted and that not
only Bob, the target, can get her contact information, but that
anyone else can easily get it. There is even a link to obtain
contact information at the bottom of the page for leaving feedback.
Therefore, Ann knows that by leaving a negative feedback, she
might be exposing herself to retaliation from Bob, or harassment
from anyone else who does not like what she posts. She also knows
(or will soon discover) that eBay is unlikely and unwilling to
become embroiled in a dispute between Bob and herself, should
things escalate. In fact, if Ann feels that Bob has violated the
rules, she may need to investigate him by "netcopping"
on her own or with other victims in order to present a complaint
to eBay, and may hesitate to leave a negative for fear of tipping
him off before the investigation is complete.[146]
{98}If Ann is not experienced, she may leave the negative for
Bob this time, but should she get an angry response, she may think
twice about leaving a negative in the future, or even about engaging
in another transaction, since her early experience has not been
positive. In addition, Ann will probably get a retaliatory negative
on her new user record, which will make other users wary of transacting
with her because, as a new user, she will have few positives to
balance the negative.
{99}In all of the above cases, Ann is unlikely to leave a negative,
even though she is dissatisfied, and therefore the feedback system
has failed to communicate useful information. Ann is most likely
to leave no comment at all. Alternatively, she might leave a "nasty
neutral," which does not detract from Bob's feedback score,
or even leave a weak positive, where Bob gets a positive point
but the comment suggests that he could do better in the customer
service area. This comment is likely to fall on deaf ears though,
since many users will not look beyond the positive rating.[147]
{100}These problems stem from Ann, an individual or small business
owner, being forced to report on Bob, non-anonymously, in a public
forum with flexible rules. By contrast, in the case of credit
reports, the reporting entities are usually impersonal, corporate
bodies that are insulated from the target through procedure and
bureaucracy. Credit reporters often have bad debts handled by
an outside collection agency that, unlike Ann, is equipped to
deal with angry targets. Credit reporting does not take place
in a public forum and certainly not on the Internet with thousands
of users watching. It is also not a communitarian activity and
is based on strict parameters (e.g. a company can only report
a bad debt uncollected after a certain number of days without
collection), rather than personal discretion.[148]
{101}Even though Ann has not reported with absolute honesty, eBay,
the firm, is likely to be happy with this outcome. If users coming
upon the eBay site see many negative comments, they will be less
likely to register and participate in transactions. eBay would
also like to boast to stockholders, regulators and other outside
bodies that the vast majority of transactions on eBay go well.
eBay therefore has an incentive to promote a "good news only
policy," encouraging positive feedback as much as possible,
and attempting to subtly discourage negative feedback. As we have
seen, eBay does this by applying pressure through warnings, by
forcing feedback to remain in the public eye, by encouraging community
members to hold their feedback in high regard, and by not protecting
users from bad consequences resulting from a bad transaction or
negative feedback.
{102}Besides a less personal, more carefully controlled system
of reporting, credit reports do have two additional advantages
that eBay feedback currently lacks: clear and fair removal procedures,
and portability.
{103}It is very difficult to remove negative feedback from one's
eBay file. The removal procedure, although more formal than it
used to be, is not crystal clear, due to the flexibility of the
comment guidelines. In the end removal is dependent on eBay's
willingness to act in a particular case, suggesting that parties
with strong bargaining power (such as high-volume sellers and
celebrities) will be favored over weaker parties (such as new
users with low feedback). Also, if the feedback is transactional
in nature, under the new rules, it is likely to stay even if it
is blatantly unfair. Barring removal by eBay, feedback is never
expunged, even if the feedback leaver is NARUed.[149] The user's only alternatives are to note
an explanation for the comment in his feedback file, leave a retaliatory
negative for the other party, and/or resort to getting an expensive
court order against the leaver of the feedback especially difficult
because many eBay users are in different legal jurisdictions,
separated by distance.[150]
On the other hand, credit reporting agencies have formal, legal
procedures for challenging a bad rating, and bad comments are
also expunged automatically after a certain number of years.[151]
{104}eBay's prohibition on retraction is good in that angry feedback
receivers cannot bully feedback leavers into erasing their comments.
However, the area of feedback removal is one where feedback appears
to be deficient to the credit reporting model. Although removal
procedures are now more formal, eBay lacks the incentive and the
resources to remove many feedback comments, particularly those
of a transactional nature (since that would involve eBay in the
transaction). Therefore, individual users still find it difficult
to challenge negative feedback. Obviously, eBay would prefer that
a user engage in many more good transactions in order to bury
or overcome the bad comment, thus generating commissions for eBay.
{105}One might argue that keeping negative feedback provides a
more honest picture, or that the negative does not impact many
critical areas of life like a negative credit report, making removal
procedures less critical.[152]
However, users have been encouraged by eBay to take feedback very
seriously, and view feedback as their reputation, so it is only
fair that eBay should allow users to challenge blots on that reputation
through an established review process. Another issue is that eBay
does not normally volunteer information about feedback that it
removes, probably in hopes of preventing a flood of removal requests,
so many users are unsure how to challenge comments or think there
is no recourse. From eBay's standpoint, this confusion is good
because it can easily avoid having to intervene.
{106}Regarding the transferability of feedback, eBay feedback
is not portable; it can normally only be used at eBay. eBay does
not allow users to transfer their feedback or link eBay feedback
to other sites for various reasons.[153]
eBay states some of these reasons on its site as concerns that
other sites will interpret feedback differently, or will facilitate
"daisy-chaining" fraud, where a user links his feedback
rating to another site and then links the same feedback rating
from that site to eBay, thus doubling his rating number.[154] Obviously, a main reason, which is not
stated, is eBay's unwillingness to allow Johnny-come-lately competitor
sites to benefit from a feature that was meant to be helpful to
eBay.
{107}Credit cards and credit reports, however, are portable, and
can be used in many businesses and many areas of life. Unlike
eBay feedback, credit reports come into play in many crucial life
areas, such as obtaining a mortgage or an educational loan. The
strict controls on credit reports partly reflect this centrality.[155]
{108}While eBay feedback is not central to life, and probably
should not be portable to important areas such as mortgage approval,
it can be central to how one behaves in e-commerce transactions
and could certainly serve a good purpose if made portable on the
web. Indeed, some users have already made attempts to "export"
their eBay reputation by signing up to do business at multiple
auction sites under the same user ID.[156]
However, because not all users choose to visit multiple sites,
confusion is possible since the same user ID on a different site
does not necessarily represent the same person.
{109}From a regulatory rather than a business standpoint, there
is no reason why eBay feedback should not be linked to or otherwise
referenced from other e-commerce sites to show online reputation.
Portable feedback would enhance the value of one's eBay reputation
and encourage one to perform even better as an eBay transaction
partner. Also, other auction sites have encouraged feedback files,
and it is theoretically possible that a user could be building
up a separate feedback file on five or six sites. This makes little
sense from a regulatory standpoint, since no one site is building
up a complete picture of the user's activities. (From a business
standpoint, each site is attempting to encourage stickiness and
code lock-in, as well as promoting their version of the feedback
system as a competitive advantage.)
{110}Feedback has some benefits, but fraud prevention is not
one of them. Therefore, the presence of large amounts of good
feedback on eBay's site probably testifies to the inherent good
intentions of most users, who want to engage in productive transactions
for mutual gain,[157]
rather than feedback's effectiveness as a fraud-stopper.
{111}Although credit reports are also powerless to stop some types
of fraud, the penalties associated with a bad credit report, as
well as the difficulty of obtaining clean credit, provide some
deterrent effect. Feedback, however, carries relatively little
penalty for a bad user because he can register under a new identity
fairly easily, as discussed in Part II.
{112}Feedback unfairly penalizes good users by making appeal difficult
and somewhat discretionary, and it passes up the opportunity to
build trust in the wider e-commerce community by lacking portability
to other auctions or contexts. The eBay system also encourages
positive comments and discourages negative comments, thus providing
a biased, positive feedback result to the company's advantage.
The complexity and user discretion, inherent in the feedback process,
also make the end result hard to interpret and unwieldy to change.
In summation, while it is likely that feedback will persist, because
users like it and enjoy some benefits, it is also clear that other
means must be found to protect eBay users against fraud.
{113}As shown by the previous sections, eBay's current model
of user registration and feedback provides a weak protection against
fraud. The eBay feedback system appears deceptively simple and
communitarian, but is actually quite complex. It is governed not
only by the simple rules eBay sets forth for its use, but by a
host of additional social norms and concerns, many of which are
unwritten and known only to experienced users. Although one positive
feature of the feedback system is educating newcomers about how
to behave, the downside is that eBay community norms are not as
simple as casual users would believe. The idea that transaction
partners honestly rate each other, and that bad partners are summarily
booted off eBay, never to return, is simply not true. Moreover,
the idea of what constitutes a "bad" partner is so open
to individual interpretation (and dependent on the willingness
of the user to leave a negative) that it is difficult to establish
clear standards. eBay's simple ratings scheme only works when
comments exchanged are positive, clearly indicating that all went
well on both sides and encouraging the users. It breaks down for
discretionary negatives.
{114}eBay has attempted to address some of the feedback system's
defects with alternative regulatory schemes. Although these schemes
might produce desired results, they can add layers of confusion
to the already confusing and discretionary message of feedback.
One example of this problem is eBay's new non-paying bidder policy,
meant to address the problem of deadbeat bidders.[158] Feedback was not functioning as an effective
disciplinary tool to prevent this problem, forcing eBay to come
up with an alternative plan to review each deadbeat bidder case
separately, in order to avoid losing money.
{115}However, due to the large number of transactions, eBay is
not able to effectively police all incidents of fraud on its own.
At this time, eBay, as stated on its site, is actually relying
primarily on third-party service providers to protect its clientele
against fraud.[159] It
also derives benefits from the potentially risky activities of
private netcops.
{116}Third-party service providers active on eBay can be divided
into two groups. The first group includes those with whom eBay
has chosen to officially partner and promote on its site. Businesses
in the second group include those with whom eBay does not have
an official partnership agreement, but which offer services helpful
for fraud prevention.
{117}The first group of eBay's partners include Equifax Secure,
Lloyds, i-Escrow.com and SquareTrade.com. Equifax provides credit
verification for eBay, while Lloyds insures all eBay purchases
up to $200 with a $25 deductible. Meanwhile, i-Escrow is an online
escrow service that holds a buyer's money until the buyer notifies
i-Escrow that the purchase has arrived safely. When this happens,
i-Escrow pays the seller.[160]
Finally, SquareTrade is a pilot mediation program. It is designed
to resolve disputes over items that cost more than $100. (There
is very little information on SquareTrade because it is a pilot
program. SquareTrade will not be discussed further in this paper.)[161] eBay is also looking
to partner with Visa, by making it the preferred payment method
on eBay. Presumably, this would include inducements for users
to pay with Visa.[162]
{118}As mentioned earlier in this paper, the major benefits of
partnering with Equifax and Lloyd's are eBay's ability to spread
responsibility and the potential risk of fraud by taking advantage
of established areas of law governing credit and insurance. The
Lloyd's program is relatively uncontroversial because it is free
and generally does not question the reputation of the user filing
a claim. However, other programs which require an opt-in, or a
payment for services by the user, have run into trouble. eBay
cannot continue to hold up positive feedback as denoting honesty,
while simultaneously suggesting that users pay extra (either in
money, or some other form like personal information) for fraud
protection.
{119}When user verification (of the type done by Equifax, or by
credit card companies) was originally discussed, many longtime
eBay users balked at the thought of having their credit reports
verified, or having personal credit card information turned over
to eBay. These users felt that their online sales records, including
feedback, represented their good reputation and that no further
checks were necessary. eBay circumvented this issue by providing
a "grandfather clause" to all existing users (and, in
a controversial move, suspending some of the most vocal critics).[163]
{120}i-Escrow has presented even more serious problems because
there is no way for eBay to exempt long-term users from the service.
Many sellers view i-Escrow as an unnecessary administrative hassle
and believe that if the seller has good feedback, the buyers need
not, or need not want, to use i-Escrow. Consequently, users became
upset when an eBay spokesperson publicly announced that sellers
who refused to use i-Escrow were probably untrustworthy.[164] eBay has also discovered that i-Escrow
prevents some forms of fraud, while encouraging new forms that
need to be controlled, a problem that might arise with other online
partnerships as well.[165]
Finally, because i-Escrow is a new business, rather than a "brick-and-mortar"
business such as Equifax, or Lloyds, it is unclear whether eBay
will be able to depend on an existing body of law for guidance.
{121}In short, the success of eBay's partnerships is partly constrained
by the community feedback norms that eBay has promoted. Having
emphasized feedback as a tool for promoting honesty, and having
built a user base that strongly agrees, eBay must now find ways
to sell new protective services to users without admitting that
feedback is an unreliable form of protection. The only way around
this problem is to design services that longtime users will value
which enhance the transaction, perhaps by adding convenience.
That way, the product can be marketed as a useful item without
referring specifically to trust issues.
{122}eBay also benefits from a number of third parties with
whom it does not have official partnerships. Chief among these
are online payment sites, such as PayPal.com, and offsite auction
resource/discussion centers, such as AuctionWatch.com and Honesty.com,
and the Online Auction Users Association ("OAUA"), a
nonprofit trade association. These businesses help eBay by providing
channels for users to perform self-help relating to fraud. For
example, using PayPal, a user can pay a middleman (an online banking
service) with his credit card and ensure that his transaction
partner receives cash. No personal information, such as credit
card numbers, need be exchanged between the transacting parties.
The seller does not have to assume the fees associated with taking
credit cards and running credit checks, because the middleman
assumes those fees. AuctionWatch, Honesty and the OAUA, through
discussions, reports and online articles, educate users about
community norms, areas of concern and methods of spotting and
foiling bad transaction partners. These organizations also perform
data gathering tasks and provide channels for passing controversial
information to eBay without eBay having to undergo the humiliation
of having users criticize its features and practices on its own
site.[166]
{123}These services occasionally take actions that are at odds
with eBay's business moves, or otherwise may cause some disruption.[167] However, by and large,
these services are helpful to eBay. They provide private market
solutions to fraud at little, or no cost to eBay. eBay is not
placed in the position of publicly stating that its feedback procedures
for fraud are ineffective because eBay does not need to promote
these services to users.
{124}Finally, eBay benefits from the efforts of private users,
"netcops," who track down fraud on their own, or in
concert with law enforcement.[168]
Often these individuals will become involved after having been
swindled themselves. They perform investigations that eBay does
not have the money, resources, or incentives[169] to do so on its own. eBay encourages
private netcopping in a number of ways. First, eBay makes contact
information relatively easy to get, and a netcop's identity relatively
easy to disguise. Second, eBay requires that a user complaining
of another user's bad practices have evidence backing up his or
her story. eBay is also very willing to act on well-documented
complaints. Finally, eBay encourages netcopping by having engaged
in explicit, or tacit cooperation agreements with netcops in the
past.
{125}eBay benefits from using netcops primarily because netcops
perform their services for free. If a netcop gathers enough reliable
information on a fraud perpetrator, eBay does not need to spend
money investigating any further. Netcopping is also relatively
invisible and does not require eBay to announce the presence of
fraud.
{126}However, eBay also runs some risks from encouraging netcopping
activities. Chiefly, there is the possibility that the netcop
may go too far in collecting and disseminating information about
his or her targets. If that occurs, eBay will likely take action
against the "good" netcop as well as the "bad"
user, despite the netcop's past valuable services. If the netcop
has a good reputation or standing in the community, then eBay
will face public fallout from its decision to suspend the netcop.
It will also lose an inexpensive source of controlling fraud by
suspending the netcop.[170]
If the netcop does not have standing in the community, the community
may be outraged at the idea that a private user is being allowed
to investigate other users, or file complaints.[171] Netcopping schemes also tend to favor
persons with the necessary knowledge and resources to perform
the task. Hence, it does not allow all users' interests to be
evenly represented.[172]
{127}Commentators have suggested that the best way around the
netcopping problem is to discourage netcops from acting on their
own, and instead have them work in concert with, or be certified
by, law enforcement professionals.[173]
Since law enforcement professionals are unlikely to have the interest
or resources to investigate small fraud complaints, consumer watchdog
groups might also prove a good source for educating netcops. Additionally,
working out agreements with eBay so that personal boundaries are
not crossed in the course of an investigation would be helpful.
{128}Many of the problems plaguing the current feedback system
stem from the difficulties inherent in a private provider managing
feedback. Private providers, such as eBay, have a limited amount
of resources to put into feedback maintenance, which is not the
core of their businesses. Providers have an incentive to remain
passive in order to avoid liability. Allowing each auction site
to have its own feedback system also limits the amount of available
information, because feedback comments cannot be transferred to
a different auction site.
{129}This section suggests a different model for feedback that
will address these concerns. For the community to get the most
regulatory benefit, feedback for all auction exchanges (and perhaps
for other e-commerce activities) could be moved to a third party
administrator. The third party administrator would be relatively
judgment-proof and would enforce specific, standardized rules
for leaving feedback and challenging feedback which is left. This
scheme would allow feedback from other auction and e-commerce
sites to be gathered into one place, so that users could not engage
in regulatory arbitrage by simply moving to a fresh site after
having exploited one.
{130}A third party administrator is necessary because if eBay's
feedback was regularly exported to new arenas, users would probably
demand that eBay provide even more formalized procedures for addressing
negative comments, as they would have a greater impact on their
online existence. However, eBay, a private business, probably
would not want to spend more time and resources managing a free
feedback system that benefits other businesses outside its website.
Therefore, third party administration is desirable. With ten million
user accounts already active on eBay, and other auction sites
promoting their own feedback systems, it is doubtful that any
community spirit would erode at this point from moving all feedback
to a third party site.
{131}Funding for such a scheme could be done through individual
user fees, or alternatively, by having online auction houses pay
an annual fee to allow all their members to have access. It is
likely that a centralized feedback regime would appeal to users
who participate in multiple auction services and wish to combine
their scores.
{132}eBay states on its site, "We believe people are basically
good."[174] For
the vast majority of its users, that statement is true. Judging
from the sheer volume of sales occurring on eBay, as well as the
large number of positive feedback comments, the typical eBay user
does not want to perpetuate fraud, but instead wants to honestly
transact business in a manner that will benefit both parties involved.
Given that most users have good intentions, eBay's feedback system
serves an important purpose as a motivational, educational and
inspirational tool, and is extremely important to many users.
{133}However, for the small percentage of users with fraudulent
intentions, the feedback system, coupled with weak registration
and a lack of anonymity does not prevent fraud, nor does it adequately
protect users against such fraud. It does serve eBay's economic
and regulatory needs of encouraging a large user base, while maintaining
distance from transactions. But for real fraud protection, users
must turn to private solutions. Although eBay wishes to avoid
having fraud on its website, and also wishes to appear committed
to fraud prevention, it must use extreme caution in promoting
additional fraud protection services to avoid upsetting its community,
which believes strongly perhaps too strongly in the feedback model.
{134}There are several ways in which this system could be improved.
First of all, as discussed in the previous section, feedback could
be made portable and handled for all auction sites by a disinterested
third party, who would also administer an appeal's procedure.
Although eBay (and other auction sites) would likely balk at losing
a perceived source of competitive advantage, in reality this would
free eBay from the "emperor's new clothes" problem of
pretending that the feedback system deters fraud, while being
faced with ever-increasing evidence that it does not. As it is,
eBay finds it hard to promote additional private solutions for
fear of contradicting its stance on feedback and angering its
users. Allowing a third party to handle standardized feedback
reporting would also ensure that users of all online auctions
receive good, reasonably consistent information.
{135}Secondly, eBay should continue the practice of partnering
with outside service providers, or permitting outside service
providers who operate within a clear legal framework to work with
eBay. These service providers can include brick-and-mortar private
companies, law enforcement and consumer watchdog groups. Operating
within a defined framework takes the burden off eBay to come up
with regulatory models and it allows eBay to better shift liability.
eBay might also identify those partners that many of its users
already prefer, thus reducing the need to sell users on the service
and risk upsetting users who believe the feedback system protects
against fraud.
{136}On a broad level, the success of community policing models
relies partly on the willingness of users to abandon or at least
modify the model when it becomes ineffective. However, when the
model is tied up with emotionally important concepts, such as
persona and reputation, users will be loath to abandon it. Online
communities which create such models in the future would do well
to recognize these models' limitations early on and educate users
before the models, like eBay's feedback system for fraud prevention,
turn into ineffective 800-lb. gorillas.
[*]
J.D./ M.B.A. candidate, Georgetown University Law Center/ McDonough
School of Business, 2001; M.S., George Washington University,
1994; B.S.E.E., Case Western Reserve University, 1985. I would
like to thank Professor Julie Cohen for providing comments and
direction, and the discussion communities of Auction Watch and
Auction Patrol for offering enlightening common-sense insights.
This Comment is dedicated to Derek de Prator, a fellow eBay user
who played a role in the completion of this work.
[1] This
paper focuses on online auctions for private retail goods. Online
auctions for stock pose different regulatory problems, such as
the feasibility of letting private stockholders bypass established
markets such as NASDAQ to sell directly to each other. See
Norman Sobol, Book Review: Intelligent Agents and Futures Shock:
Regulatory Challenges of the Internet, 25 IOWA J. CORP.
L. 103 , 108 n.4 (1999) (reviewing HOWARD M. FRIEDMAN, SECURITIES REGULATION IN CYBERSPACE, at 15-14 (2d ed. 1998)). The online auction
site eBay, the focus of this paper, prohibits auctions of stock
and other securities on its site. See eBay-Stocks, Bonds,
Securities and Related Certificates, at http://pages.ebay.com/help/community/png-stocks.html
(last visited Mar. 9, 2001).
[2] For
a general discussion of online auction fraud practices, see
James M. Snyder, Note, Online Auction Fraud: Are the Auction
Houses Doing All They Should or Could to Stop Online Fraud?,
52 FED.
COMM.
L.J. 453, 457-59 (2000).
[3] See,
e.g., id. at 455 (noting tremendous
increases in online auction complaints to the FTC and watchdog
groups, and involvement of National Consumers League); Heartland
Better Business Bureau, News, Events & BBB Integrity Awards,
available at http://www.heartlandbbb.org/NewsEvents/hot_topics.htm
(last visited Mar. 9, 2001).
[4] See,
e.g., infra notes 33-34
and accompanying text (discussing widely reported incidents of
a 13-year-old placing fake bids on high dollar items, such as
a classic car, and a fake bid on a charity auction sponsored by
ABC's Today Show).
[5] Deadbeat
bidders are a frequent topic of discussion on Auctionwatch.com,
a well-known resource site for the eBay community. See, e.g.,
Posting of dnjbias, dnjbias@auctionwatch.com to http://www.auctionwatch.com/mesg/read.html
(Jan. 26, 2001) RE: Deadbeats on the Rise?, at http:// www.auctionwatch.com/
mesg/read.html?num=2&thread=164045 (noting incidents of deadbeats
on items with average values of $25 and $15).
[6] This
is in direct contrast to live auctions, which are normally regulated
at the state level. Online auctions do not fit well into state
regulatory schemes because the online auctioneer is an automated
process, and is therefore not acting as the seller's agent in
the traditional sense. See Richard A. White, Overcoming
Regulatory Barriers to Successful E-Commerce, 570 PRAC.
L. INST. COPYRIGHTS, TRADEMARKS And Literary Prop. Course Handbook Series,
703, 708 (1999). Jurisdictional constraints when the auction buyer
or seller lives outside the state hamper enforceability of state
laws and may invoke commerce clause issues. See generally
Dan L. Burk, Federalism in Cyberspace, 28 CONN.
L. REV.
1095 (1996). State governments are vulnerable to a deluge of complaints
from online auction users, including state citizens. See
Amanda Strickland, N.C. Holds Off Controversial E-Auction Regs,
THE
BUS.
J., Dec. 31, 1999, available at http://triangle.bcentral.com/triangle/stories/2000/01/03/story4.html
(discussing how North Carolina auction sellers were joined by
other sellers across the country, as well as the trade association
Online Auction Users Association (OAUA), to defeat an attempt
by North Carolina to force online auction sellers to obtain $250
auctioneers' licenses).
[7] See Lawrence Lessig, The Law of the Horse:
What Cyberlaw Might Teach, 113 HARV. L. REV. 500, 507-511 (1999) (describing four modalities
of regulation in cyberspace as law, social norms, markets, and
architecture or code). In this case, social norms and markets,
which are relied upon by the feedback system, have failed to prevent
fraud, so eBay must rely upon code and law.
[8] See
id. In partnering with third
parties, eBay relies upon external laws such as the Fair Credit
Reporting Act that govern third parties' business activities but
place little burden directly upon eBay's company.
[9] About
eBay Company Overview,
at http://pages.ebay.com/community/aboutebay/overview/index.html
(last visited Mar. 6, 2001).
[10] See
eBay Category Overview,
at http://listings.ebay.com/aw/listings/overview.html
(last visited Mar. 6, 2001). The "practically anything on
earth" designation has been limited by the fact that eBay
prohibits or controls the sale of many items, including but not
limited to alcohol and tobacco products, firearms, human parts
and remains, TV descramblers, drug paraphernalia, live animals,
copyrighted items, unwashed clothing, hate memorabilia, and a
wide range of adult materials. See Is My Item Allowed
on eBay? Prohibited, Questionable and Infringing Items,
at http://pages.ebay.com/help/community/png-items.html
(last visited Mar. 6, 2001).
[11] This
folksy tale usually omits the fact that founder Pierre Omidyar
was a Silicon Valley veteran who had already started one e-commerce
site that was purchased by Microsoft. See Daniel Roth,
Meg Muscles eBay Uptown, FORTUNE, July 5, 1999, at 81.
[12] Competitors include major e-commerce firms
such as Yahoo! and Amazon, as well as smaller im