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. We analyze nearly one million fixed-price eBay listings of Pokemon cards, where sellers choose among three signals: third-party grading (institutional certification), self-grading (a self-claimed condition description), or no signal. We show that self-grading and third-party grading dominate distinct regions of the reputation-value space, with the self-grading region widening as reputation rises. Reputation also amplifies the price premium of self-grading but not that of third-party grading. We develop a signaling game in which a false self-claim carries an ex-post cost proportional to reputation, whereas certification carries an ex-ante cost independent of reputation. These costs split the reputation-value space into equilibrium regimes that explain both patterns. The two mechanisms are therefore substitutes within a transaction yet complements across the market, replacing the reputation-versus-institution dichotomy with a regime structure set by reputation and value.

Date: 2026-08
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