Buyers pay for and sellers invest in a good reputation: More evidence from eBay

Wojtek Przepiorka

Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), 2013, vol. 42, issue C, 31-42

Abstract: This article contributes to the research on trust and reputation formation in anonymous online markets. I first give a formal account of the reputation mechanism in anonymous online markets and derive testable hypotheses. Based on the analysis of a large set of process data (N≈176,000), I corroborate a statistically and economically significant seller reputation effect on the probability of sale and the selling price both in auctions and fixed price offers. Moreover, my analysis shows that sellers making fixed price offers invest in a good reputation to a similar extent as buyers pay for it in auctions. Finally, I obtain repeated observations on a considerable subset of the buyer population by including highest non-winning bids in the analysis and show that buyers trade off sellers’ reputations and prices within the set of offered items they choose to bid on. My findings provide further evidence that reputation systems solve trust problems and reduce transaction costs in anonymous online markets by providing incentives for traders’ cooperative behavior.

Keywords: Trust; Trustworthiness; Uncertainty; Reputation; Online markets (search for similar items in EconPapers)
JEL-codes: C51 C73 D82 L81 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:soceco:v:42:y:2013:i:c:p:31-42

DOI: 10.1016/j.socec.2012.11.004

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