Defection-free exchange mechanisms based on an entry fee imposition

We propose a safe exchange mechanism involving indivisible goods and divisible goods. A typical situation is an exchange involving goods and money in a person-to-person trade in an Internet auction. Although the Internet and agent technologies have facilitated world-wide trade, we sometimes encounter risky situations, such as fraud, in the process of exchanges involving goods and money. This problem is becoming more serious with the growing popularity of person-to-person trade. One of the reasons why fraud is becoming widespread is that obtaining a new identifier in a network is cheap. This makes it almost impossible to exclude malicious agents from trade. One solution is to impose an entry fee. However, if the entry fee is too high, it will discourage newcomers from starting deals. To resolve the conflict between safety and convenience, we developed three exchange mechanisms that can guarantee against defection from a contract. Two of them reduce the entry fee by integrating multiple deals and controlling the flow of goods and money. The other reduces the entry fee by incorporating a third-party agent into the exchange process. We examine the lower bound of the entry fee for both of these mechanisms and describe a calculation method by which this value can be obtained in linear time. Our results show that the described mechanism can effectively reduce the lower bound of the entry fee.  2002 Elsevier Science B.V. All rights reserved.