1. I want to make sure the buyer is authentic and has the available funds
2. Once the merchant wins the auction, buyer cannot back out and the deposit authorized earlier goes to the merchant.
Now you are getting into 'escrow' territory, which is yet another level of difficulty.
> Once the merchant wins the auction, buyer cannot back out and the deposit authorized earlier goes to the merchant.
That sentence makes absolutely no sense!
I think you have 'merchant' and 'buyer' switched in the first part.
The normal way this is done is that the auction requires the buyers to put up a 'can execute' before the auction.
For online auctions this is rarely done, the more common method is that the #2 gets it if the #1 does not perform.
His/her bid then counts as retracted and they're banned from further bidding.