Buying reputation as a signal of quality: Evidence from an online marketplace

Lingfang Li, Steven Tadelis and Xiaolan Zhou

RAND Journal of Economics, 2020, vol. 51, issue 4, 965-988

Abstract: Seller reputation, generated by buyer feedback, is critical to fostering trust in online marketplaces. Marketplaces or sellers may choose to compensate buyers for providing feedback. Signaling theory predicts that only sellers of high‐quality products will reward buyers for truthful feedback, especially when a product lacks any feedback and when the seller is not established. We confirm these hypotheses using Taobao's reward‐for‐feedback mechanism. High‐quality products, especially without established feedback, are chosen for feedback rewards, which cause sales to increase by 36%. Marketplaces and consumers can therefore benefit from allowing sellers to buy feedback and signal their high‐quality products in the process.

Date: 2020
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Citations: View citations in EconPapers (18)

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https://doi.org/10.1111/1756-2171.12346

Related works:
Working Paper: Buying Reputation as a Signal of Quality: Evidence from an Online Marketplace (2016)
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