IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

The Dynamics of Seller Reputation: Theory and Evidence from eBay

  • Cabral, Luís M B
  • Hortaçsu, Ali

We propose a basic theoretical model of eBay’s reputation mechanism, derive a series of implications and empirically test their validity. Our theoretical model features both adverse selection and moral hazard. We show that when a seller receives a negative rating for the first time his reputation decreases and so does his effort level. This implies a decline in sales and sale price; and an increase in the rate of arrival of subsequent negative feedback. Our model also suggests that sellers with worse records are more likely to exit (and possibly re-enter under a new identity), whereas better sellers have more to gain from ‘buying a reputation’ by building up a record of favourable feedback through purchases rather than sales. Our empirical evidence, based on a panel dataset of seller feedback histories and cross-sectional data on transaction prices collected from eBay, is broadly consistent will all of these predictions. An important conclusion of our results is that eBay’s reputation system gives way to strategic responses from both buyers and sellers.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=4345
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4345.

as
in new window

Length:
Date of creation: Apr 2004
Date of revision:
Handle: RePEc:cpr:ceprdp:4345
Contact details of provider: Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order Information: Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Paul Milgrom & John Roberts, 1997. "Predation, reputation , and entry deterrence," Levine's Working Paper Archive 1460, David K. Levine.
  2. Mailath,G.J. & Samuelson,L., 1998. "Who wants a good reputation?," Working papers 19, Wisconsin Madison - Social Systems.
  3. Jaap H. Abbring & Pierre-André Chiappori & Jean Pinquet, 2003. "Moral Hazard and Dynamic Insurance Data," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 767-820, 06.
  4. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 53-82, January.
  5. Holmstrom, Bengt, 1999. "Managerial Incentive Problems: A Dynamic Perspective," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 169-82, January.
  6. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  7. Mailath,G.J. & Samuelson,L., 1998. "Your reputation is who you're not, not who you'd like to be," Working papers 18, Wisconsin Madison - Social Systems.
  8. Douglas Gale & Robert W. Rosenthal, 1994. "Price and Quality Cycles for Experience Goods," RAND Journal of Economics, The RAND Corporation, vol. 25(4), pages 590-607, Winter.
  9. Cynthia G. McDonald & V. Carlos Slawson, 2002. "Reputation in An Internet Auction Market," Economic Inquiry, Western Economic Association International, vol. 40(4), pages 633-650, October.
  10. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August.
  11. Alvin E. Roth & Axel Ockenfels, . "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet," Papers on Strategic Interaction 2002-32, Max Planck Institute of Economics, Strategic Interaction Group.
  12. Doug Bryan & David Lucking-Reiley & Naghi Prasad & Daniel Reeves, 2000. "Pennies from eBay: The Determinants of Price in Online Auctions," Vanderbilt University Department of Economics Working Papers 0003, Vanderbilt University Department of Economics.
  13. Steven Tadelis, 1999. "What's in a Name? Reputation as a Tradeable Asset," American Economic Review, American Economic Association, vol. 89(3), pages 548-563, June.
  14. Ockenfels, Axel & Roth, Alvin E., 2006. "Late and multiple bidding in second price Internet auctions: Theory and evidence concerning different rules for ending an auction," Games and Economic Behavior, Elsevier, vol. 55(2), pages 297-320, May.
  15. Christopher Phelan, 2001. "Public trust and government betrayal," Staff Report 283, Federal Reserve Bank of Minneapolis.
  16. Eric J. Friedman* & Paul Resnick, 2001. "The Social Cost of Cheap Pseudonyms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(2), pages 173-199, 06.
  17. Porter, Robert H., 1983. "Optimal cartel trigger price strategies," Journal of Economic Theory, Elsevier, vol. 29(2), pages 313-338, April.
  18. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
  19. Edward J Green & Robert H Porter, 1997. "Noncooperative Collusion Under Imperfect Price Information," Levine's Working Paper Archive 1147, David K. Levine.
  20. David Kreps & Robert Wilson, 1999. "Reputation and Imperfect Information," Levine's Working Paper Archive 238, David K. Levine.
  21. Luis Cabral, 2000. "Stretching Firm and Brand Reputation," Working Papers 00-07, New York University, Leonard N. Stern School of Business, Department of Economics.
  22. David Kreps & Paul Milgrom & John Roberts & Bob Wilson, 2010. "Rational Cooperation in the Finitely Repeated Prisoners' Dilemma," Levine's Working Paper Archive 239, David K. Levine.
  23. Douglas W. Diamond, 1998. "Reputation Acquisition in Debt Markets," Levine's Working Paper Archive 602, David K. Levine.
  24. Watson, Joel, 1999. "Starting Small and Commitment," University of California at San Diego, Economics Working Paper Series qt37p340fc, Department of Economics, UC San Diego.
  25. Telser, L G, 1980. "A Theory of Self-enforcing Agreements," The Journal of Business, University of Chicago Press, vol. 53(1), pages 27-44, January.
  26. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
  27. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  28. repec:hal:journl:hal-00397121 is not listed on IDEAS
  29. Steven Tadelis, 2002. "The Market for Reputations as an Incentive Mechanism," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 854-882, August.
  30. Daniel Houser & John Wooders, 2006. "Reputation in Auctions: Theory, and Evidence from eBay," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(2), pages 353-369, 06.
  31. Bajari, Patrick & Hortacsu, Ali, 2003. " The Winner's Curse, Reserve Prices, and Endogenous Entry: Empirical Insights from eBay Auctions," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 329-55, Summer.
  32. 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.
  33. Paul Resnick & Richard Zeckhauser & John Swanson & Kate Lockwood, 2006. "The value of reputation on eBay: A controlled experiment," Experimental Economics, Springer, vol. 9(2), pages 79-101, June.
  34. Hoch, Stephen J & Ha, Young-Won, 1986. " Consumer Learning: Advertising and the Ambiguity of Product Experience," Journal of Consumer Research, University of Chicago Press, vol. 13(2), pages 221-33, September.
  35. Heski Bar-Isaac, 2003. "Reputation and Survival: Learning in a Dynamic Signalling Model," Review of Economic Studies, Wiley Blackwell, vol. 70(2), pages 231-251, 04.
  36. Watson, Joel, 1999. "Starting Small and Renegotiation," Journal of Economic Theory, Elsevier, vol. 85(1), pages 52-90, March.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:4345. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct address

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.