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The Value of Reputation on eBay: A Controlled Experiment

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Author Info

  • Resnick, Paul

    (U of Michigan)

  • Zeckhauser, Richard

    (Harvard U)

  • Swanson, John

    (U of Michigan)

  • Lockwood, Kate

    (eBay and Mission Viejo)

Abstract

Many empirical studies assess the effectiveness of reputation mechanisms, such as eBay's Feedback Forum. These investigations involve products ranging from pennies to collector guitars; they vary widely in their conclusions on how well reputation systems perform. Part of the explanation for the disparity among prior studies is that they merely collect samples from the eBay population. Such observational studies significantly increase the number of other variables that are left uncontrolled. This makes it difficult to isolate the effects of reputation on auction outcome. In our main experiment, we worked with an established eBay auctioneer to sell matched pairs of items -- batches of vintage postcards -- under his extremely high reputation identity, and under newcomer identities with little reputation. Our second experiment followed the same format, but compared sales under newcomer identities with and without negative feedback. Having controlled the content of the auctions, and the presentation of item information, we were able to minimize the effects of variables other than reputation. As expected, the established identity fared better. The price difference was 7.6% of the selling price. Back-of-the-envelope calculations indicate that this amount is reasonable, given the level of risk that buyers incur. Surprisingly, one or two negative feedbacks for our new IDs had no price effects, even though these sellers had few positives.

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Bibliographic Info

Paper provided by Harvard University, John F. Kennedy School of Government in its series Working Paper Series with number rwp03-007.

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Date of creation: Feb 2003
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Handle: RePEc:ecl:harjfk:rwp03-007

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References

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  1. Douglas W. Diamond, 1998. "Reputation Acquisition in Debt Markets," Levine's Working Paper Archive 602, David K. Levine.
  2. Shapiro, Carl, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 659-79, November.
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  13. Tanjim Hossain & John Morgan, 2006. "...plus shipping and handling: Revenue (non) equivalence in field experiments on ebay," Natural Field Experiments 00270, The Field Experiments Website.
  14. Miller, Nolan & Resnick, Paul & Zeckhauser, Richard, 2002. "Eliciting Honest Feedback in Electronic Markets," Working Paper Series rwp02-039, Harvard University, John F. Kennedy School of Government.
  15. Paul Resnick & Christopher Avery & Richard Zeckhauser, 1999. "The Market for Evaluations," American Economic Review, American Economic Association, vol. 89(3), pages 564-584, June.
  16. Patrick Bajari & Ali Horta�su, 2004. "Economic Insights from Internet Auctions," Journal of Economic Literature, American Economic Association, vol. 42(2), pages 457-486, June.
  17. Jeffrey A. Livingston, 2005. "How Valuable Is a Good Reputation? A Sample Selection Model of Internet Auctions," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 453-465, August.
  18. Camerer, Colin, 1996. "Can Asset Markets be Manipulated? A Field Experiment with Racetrack Betting," Working Papers 983, California Institute of Technology, Division of the Humanities and Social Sciences.
  19. Gary Bolton & Duncan Fong & Paul Mosquin, 2003. "Bayes Factors with an Application to Experimental Economics," Experimental Economics, Springer, vol. 6(3), pages 311-325, November.
  20. Robert Slonim & Alvin E. Roth, 1998. "Learning in High Stakes Ultimatum Games: An Experiment in the Slovak Republic," Econometrica, Econometric Society, vol. 66(3), pages 569-596, May.
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