Buying Reputation as a Signal of Quality: Evidence from an Online Marketplace
Lingfang (Ivy) Li,
Steven Tadelis and
No 22584, NBER Working Papers from National Bureau of Economic Research, Inc
Reputation is critical to foster trust in online marketplaces, yet leaving feedback is a public good that can be under-provided unless buyers are rewarded for it. Signaling theory implies that only high quality sellers would reward buyers for truthful feedback. We explore this scope for signaling using Taobao's "reward-for-feedback" mechanism and find that items with rewards generate sales that are nearly 30% higher and are sold by higher quality sellers. The market design implication is that marketplaces can benefit from allowing sellers to use rewards to build reputations and signal their high quality in the process.
JEL-codes: D47 D82 L15 L86 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-ict, nep-ind, nep-mkt and nep-sog
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