An incentive mechanism designed for e-marketplaces with limited inventory

In electronic marketplaces, reputation systems and incentive mechanisms are prevalently employed to promote the honesty of sellers and buyers. In this article, we focus on the scenario in which the inventory is in short supply, i.e. an e-marketplace with limited inventory (EMLI). The challenges are in two-fold: (a) for sellers who aim to maximize their profit, they may intentionally conduct dishonest transactions since the limited products are likely to be sold out regardless of their reputation; (b) for buyers who intend to gain the limited products, they may provide untruthful ratings to mislead other buyers. To address these issues, we propose an incentive mechanism to promote buyer and seller honesty for this type of e-marketplaces. Specifically, the mechanism models the honesty of buyers and sellers as scores and reputation, respectively. It then offers a higher price to the products of more honest sellers (with higher reputation) and allocates the products to more honest buyers (with higher scores). In this way, both sellers and buyers are well encouraged to be honest. Furthermore, we impose proper membership fee on new sellers to cope with the whitewashing attack. We finally theoretically analyze and empirically demonstrate the efficacy of the proposed mechanism and its nice properties.