Reputation and institutional certification as complementary trust mechanisms in a single online market

Yuta Kido and Yohsuke Ohtsubo

Papers from arXiv.org

Abstract: Reputation and institutional certification are the two main trust mechanisms under information asymmetry, yet their interaction remains poorly understood. Here we analyze nearly one million eBay listings of Pokemon trading cards. Each listing pairs the seller's reputation with their signal choice, that is, whether they used costly third-party certification, their own costless claim (self-grading), or neither to convey the card's quality. First, we find that certification and self-grading partition the market. Self-grading prevails where reputation is high and value low, whereas certification prevails in the market's opposite corner. Furthermore, seller reputation raises the price premium of self-grading but not of certification. We then show that both empirical patterns follow from a signaling model in which false self-grading damages reputation, whereas certification requires an up-front fee. These results suggest that, even within a single market, trust rests not on a choice between reputation and institutions but on a division of labor.

Date: 2026-08, Revised 2026-09
New Economics Papers: this item is included in nep-gth, nep-mic and nep-soc
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