An incentive mechanism to promote honesty among seller agents in electronic marketplaces

Abstract With the rapid development of online shopping, usually, sellers and buyers have virtual identities, which are not veri?ed beforehand. As a result, establishing trust between sellers and buyers is much harder than before where sellers and buyers would meet face to face before making any transaction. In this work, we propose a method for the marketplace management under anonymous buyers and sellers which makes the honest behavior the most pro?ting action for rational sellers. In this method, the market operator adopts an honesty promoting mechanism based on direct reward and punishment in which being honest is the most pro?table action. In most online marketplaces, a fee or commission is deducted from every payment before settling the account up with the seller. As such, with the dynamic adjustment of the fee, it is possible to reward or punish the seller. The correctness of this method is proven using mathematical models. The apparatus, processes, and algorithms for the marketplace are elaborated in detail so that market operators can easily apply the method in their existing marketplaces.Keywords Honesty Trust E-marketplaces Reward and punis