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

  • Luis Cabral
  • Ali Hortacsu

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 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 favorable feedback through purchases rather than sales. Our empirical evidence, based on a panel data set of seller feedback histories and cross-sectional data on transaction prices collected from eBay is broadly consistent with 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.nber.org/papers/w10363.pdf
Download Restriction: no

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10363.

as
in new window

Length:
Date of creation: Mar 2004
Date of revision:
Handle: RePEc:nbr:nberwo:10363
Note: IO
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Web page: http://www.nber.org
Email:


More information through EDIRC

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. Cabral, L.M.B., 2000. "Stretching Firm and Brand Reputation," New York University, Leonard N. Stern School Finance Department Working Paper Seires 00-07, New York University, Leonard N. Stern School of Business-.
  2. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
  3. 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.
  4. George J. Mailath & Larry Samuelson, 1998. "Your Reputation Is Who You're Not, Not Who You'd Like To Be," CARESS Working Papres rep-is-sep, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  5. 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.
  6. Christopher Phelan, 2001. "Public trust and government betrayal," Staff Report 283, Federal Reserve Bank of Minneapolis.
  7. 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.
  8. Alvin E. Roth & Axel Ockenfels, 2002. "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet," American Economic Review, American Economic Association, vol. 92(4), pages 1093-1103, September.
  9. George J. Mailath & Larry Samuelson, . "Who Wants a Good Reputation?," Penn CARESS Working Papers a3e3219aee004bd237f8112f9, Penn Economics Department.
  10. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  11. Douglas W. Diamond, 1998. "Reputation Acquisition in Debt Markets," Levine's Working Paper Archive 602, David K. Levine.
  12. 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.
  13. Joel Watson, 1999. "Starting Small and Commitment," Cowles Foundation Discussion Papers 1217, Cowles Foundation for Research in Economics, Yale University.
  14. 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.
  15. Paul Milgrom & John Roberts, 1997. "Predation, reputation , and entry deterrence," Levine's Working Paper Archive 1460, David K. Levine.
  16. Doug Bryan & David Lucking-Reiley & Naghi Prasad & Daniel Reeves, 2000. "Pennies from eBay: the Determinants of Price in Online Auctions," Econometric Society World Congress 2000 Contributed Papers 1736, Econometric Society.
  17. David Kreps & Robert Wilson, 1999. "Reputation and Imperfect Information," Levine's Working Paper Archive 238, David K. Levine.
  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. 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.
  20. 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.
  21. Holmstrom, Bengt, 1999. "Managerial Incentive Problems: A Dynamic Perspective," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 169-82, January.
  22. Green, Edward J. & Porter, Robert H., 1982. "Noncooperative Collusion Under Imperfect Price Information," Working Papers 367, California Institute of Technology, Division of the Humanities and Social Sciences.
  23. Jaap H. Abbring & Pierre-Andre Chiappori, 2004. "Moral Hazard and Dynamic Insurance Data," 2004 Meeting Papers 316, Society for Economic Dynamics.
  24. 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.
  25. 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.
  26. 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.
  27. 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.
  28. repec:hal:journl:hal-00397121 is not listed on IDEAS
  29. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  30. Watson, Joel, 1999. "Starting Small and Renegotiation," Journal of Economic Theory, Elsevier, vol. 85(1), pages 52-90, March.
  31. 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.
  32. 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.
  33. Porter, Robert H., 1983. "Optimal cartel trigger price strategies," Journal of Economic Theory, Elsevier, vol. 29(2), pages 313-338, April.
  34. 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.
  35. Axel Ockenfels & Alvin E. Roth, 2003. "Late and Multiple Bidding in Second Price Internet Auctions: Theory and Evidence Concerning Different Rules for Ending an Auction," CESifo Working Paper Series 992, CESifo Group Munich.
  36. 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.
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:nbr:nberwo:10363. 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: ()

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.