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The Effect of Reputation on Selling Prices in Auctions

Author

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  • Grund Christian

    () (Department of Business and Economics, University of Würzburg, Sanderring 2, 97070 Würzburg, Germany)

  • Gürtler Oliver

    () (Department of Economics – BWL II, University of Bonn, Adenauerallee 24–42, 53113 Bonn, Germany)

Abstract

It is often argued in economics that building a reputation for trustworthiness could help individuals or firms to mitigate or even overcome problems of contractual incompleteness. In this paper, we use data from the German eBay website to test whether a seller’s bad reputation has an effect on selling prices. For auctions of popular DVDs at eBay we do indeed find evidence for this hypothesis. We show that an increase in the share of negative ratings of one percentage point decreases the selling price by about 4 per cent. The number of negative ratings, in contrast, does not affect the selling price significantly. Hence, bidders on the eBay marketplace seem to concentrate on relative rather than on absolute measures of reputation. Further, we challenge the recommendation that it is profitable for eBay sellers to let their auction end in the evening, when many potential buyers are supposed to be online. We find that prices are relatively lower in the evening. This may be due to a much higher supply of DVDs in the evening.

Suggested Citation

  • Grund Christian & Gürtler Oliver, 2008. "The Effect of Reputation on Selling Prices in Auctions," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 228(4), pages 345-356, August.
  • Handle: RePEc:jns:jbstat:v:228:y:2008:i:4:p:345-356
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    References listed on IDEAS

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    Cited by:

    1. Christopher Schlägel & Birgitta Wolff, 2007. "Country-Specific Effects of Reputation and Information: A Comparison of Online Auctions in Germany, the UK, and the US," FEMM Working Papers 07027, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.

    More about this item

    Keywords

    Auction; eBay feedback system; reputation; trustworthiness;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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