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Does Cheap Talk Affect Market Outcomes? Evidence from eBay

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  • Daniel W. Elfenbein
  • Raymond Fisman
  • Brian McManus

Abstract

We study cheap talk by firms and responses by their consumers, focusing on unverifiable promises of charitable donations on eBay during 2005–2006. Cheap talk listings have lower sales probabilities but sell at higher prices when successful. The negative relationship between cheap talk and sales is concentrated in the months following Hurricane Katrina, a time when verifiable and unverifiable charity listings increased dramatically. Finally, we show that cheap talk sellers have lower quality ratings than those making verifiable donations. Our results suggest that buyers (justifiably) avoid cheap talk listings when credible quality signals are available, thus limiting the extent of cheap talk.

Suggested Citation

  • Daniel W. Elfenbein & Raymond Fisman & Brian McManus, 2019. "Does Cheap Talk Affect Market Outcomes? Evidence from eBay," American Economic Journal: Applied Economics, American Economic Association, vol. 11(4), pages 305-326, October.
    • Handle: RePEc:aea:aejapp:v:11:y:2019:i:4:p:305-26
    Note: DOI: 10.1257/app.20170086
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    Cited by:

    1. Aflagah, Kodjo & Bernard, Tanguy & Viceisza, Angelino, 2022. "Cheap talk and coordination in the lab and in the field: Collective commercialization in Senegal," Journal of Development Economics, Elsevier, vol. 154(C).
    2. Brownen-Trinh, Ruby & Orujov, Ayan, 2023. "Corporate socio-political activism and retail investors: Evidence from the Black Lives Matter campaign," Journal of Corporate Finance, Elsevier, vol. 80(C).
    3. Kolcava, Dennis, 2020. "Do citizens hold business accountable for greenwashing by demanding more government intervention?," OSF Preprints sj4dk, Center for Open Science.
    4. Lee, Jaesun & Shapiro, Dmitry, 2023. "Quality communication via cheap-talk messages in experimental auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 212(C), pages 74-107.
    5. Jiang, Zhong-Zhong & Zhao, Jinlong & Zhang, Yinghao & Yi, Zelong, 2022. "Unraveling the cheap talk’s informativeness of product quality in supply chains: A lying aversion perspective," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 166(C).

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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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