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The Value of Reputation on eBay: A Controlled Experiment

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Author Info
Resnick, Paul (U of Michigan)
Zeckhauser, Richard (Harvard U)
Swanson, John (U of Michigan)
Lockwood, Kate (eBay and Mission Viejo)

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Abstract

Many empirical studies assess the effectiveness of reputation mechanisms, such as eBay's Feedback Forum. These investigations involve products ranging from pennies to collector guitars; they vary widely in their conclusions on how well reputation systems perform. Part of the explanation for the disparity among prior studies is that they merely collect samples from the eBay population. Such observational studies significantly increase the number of other variables that are left uncontrolled. This makes it difficult to isolate the effects of reputation on auction outcome. In our main experiment, we worked with an established eBay auctioneer to sell matched pairs of items -- batches of vintage postcards -- under his extremely high reputation identity, and under newcomer identities with little reputation. Our second experiment followed the same format, but compared sales under newcomer identities with and without negative feedback. Having controlled the content of the auctions, and the presentation of item information, we were able to minimize the effects of variables other than reputation. As expected, the established identity fared better. The price difference was 7.6% of the selling price. Back-of-the-envelope calculations indicate that this amount is reasonable, given the level of risk that buyers incur. Surprisingly, one or two negative feedbacks for our new IDs had no price effects, even though these sellers had few positives.

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Paper provided by Harvard University, John F. Kennedy School of Government in its series Working Paper Series with number rwp03-007.

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Date of creation: Feb 2003
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Handle: RePEc:ecl:harjfk:rwp03-007

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Miller, Nolan & Resnick, Paul & Zeckhauser, Richard, 2002. "Eliciting Honest Feedback in Electronic Markets," Working Paper Series rwp02-039, Harvard University, John F. Kennedy School of Government. [Downloadable!]
  2. Christopher Avery & Paul Resnick & Richard Zeckhauser, 1999. "The Market for Evaluations," American Economic Review, American Economic Association, vol. 89(3), pages 564-584, June. [Downloadable!] (restricted)
  3. Glenn W. Harrison & John A. List, 2004. "Field Experiments," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1009-1055, December. [Downloadable!] (restricted)
  4. Sanjeev Dewan & Vernon Hsu, 2004. "Adverse Selection In Electronic Markets: Evidence From Online Stamp Auctions," Journal of Industrial Economics, Blackwell Publishing, vol. 52(4), pages 497-516, December. [Downloadable!] (restricted)
  5. John A. List & David Lucking-Reiley, 2002. "The Effects of Seed Money and Refunds on Charitable Giving: Experimental Evidence from a University Capital Campaign," Journal of Political Economy, University of Chicago Press, vol. 110(1), pages 215-233, February. [Downloadable!] (restricted)
    Other versions:
  6. Luís Cabral & Ali Hortacsu, 2004. "The Dynamics of Seller Reputation: Theory and Evidence from eBay," Working Papers 04-05, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
    Other versions:
  7. Jeffrey A. Livingston, 2005. "How Valuable Is a Good Reputation? A Sample Selection Model of Internet Auctions," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 453-465, December. [Downloadable!] (restricted)
  8. Cynthia G. McDonald & V. Carlos Slawson, 2002. "Reputation in An Internet Auction Market," Economic Inquiry, Oxford University Press, vol. 40(4), pages 633-650, October.
  9. Camerer, Colin, 1996. "Can Asset Markets be Manipulated? A Field Experiment with Racetrack Betting," Working Papers 983, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  10. Daniel Houser & John Wooders, 2006. "Reputation in Auctions: Theory, and Evidence from eBay," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 15(2), pages 353-369, 06. [Downloadable!] (restricted)
  11. Shapiro, Carl, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 659-79, November. [Downloadable!] (restricted)
  12. John A. List & David Lucking-Reiley, 2000. "Demand Reduction in Multiunit Auctions: Evidence from a Sportscard Field Experiment," American Economic Review, American Economic Association, vol. 90(4), pages 961-972, September. [Downloadable!] (restricted)
  13. Doug Bryan & David Lucking-Reiley & Naghi Prasad & Daniel Reeves, 2000. "Pennies from eBay: the Determinants of Price in Online Auctions," Econometric Society World Congress 2000 Contributed Papers 1736, Econometric Society. [Downloadable!]
  14. David Lucking-Reiley, 1999. "Using field experiments to test equivalence between auction formats: Magic On the Internet," Framed Field Experiments 0055, The Field Experiments Website. [Downloadable!]
  15. Robert Slonim & Alvin E. Roth, 1998. "Learning in High Stakes Ultimatum Games: An Experiment in the Slovak Republic," Econometrica, Econometric Society, vol. 66(3), pages 569-596, May.
  16. Gary E. Bolton & Elena Katok & Axel Ockenfels, 2003. "How Effective are Electronic Reputation Mechanisms? An Experimental Investigation," Working Paper Series in Economics 3, University of Cologne, Department of Economics. [Downloadable!]
  17. Eric J. Friedman* & Paul Resnick, 2001. "The Social Cost of Cheap Pseudonyms," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 10(2), pages 173-199, 06. [Downloadable!] (restricted)
  18. Gary Bolton, 2003. "How Effective are Electronic Reputation Mechanisms?," Working Papers gb1, The Pennsylvania State University, Laboratory for Economic Mangement and Auctions, revised 01 Aug 2003. [Downloadable!]
  19. Doug Bryan & David Lucking-Reiley & Naghi Prasad & Daniel Reeves, 1999. "Pennies from eBay: The Determinants of Price in Online Auctions," Working Papers 0003, Department of Economics, Vanderbilt University, revised Jan 2000. [Downloadable!]
  20. Tanjim Hossain & John Morgan, 2006. "...Plus Shipping and Handling: Revenue (Non) Equivalence in Field Experiments on eBay," Advances in Economic Analysis & Policy, Berkeley Electronic Press, vol. 6(2), pages 1429-1429. [Downloadable!] (restricted)
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  21. David Lucking-Reiley, 1999. "Using Field Experiments to Test Equivalence between Auction Formats: Magic on the Internet," American Economic Review, American Economic Association, vol. 89(5), pages 1063-1080, December. [Downloadable!] (restricted)
  22. Gary Bolton & Duncan Fong & Paul Mosquin, 2003. "Bayes Factors with an Application to Experimental Economics," Experimental Economics, Springer, vol. 6(3), pages 311-325, November. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gary Bolton, 2003. "How Effective are Electronic Reputation Mechanisms?," Working Papers gb1, The Pennsylvania State University, Laboratory for Economic Mangement and Auctions, revised 01 Aug 2003. [Downloadable!]
  2. Gary E. Bolton & Axel Ockenfels, 2008. "Does Laboratory Trading Mirror Behavior in Real World Markets? Fair Bargaining and Competitive Bidding on EBay," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  3. Gary Bolton & Elena Katok & Axel Ockenfels, 2002. "Bridging the Trust Gap in Electronic Markets," Papers on Strategic Interaction 2002-26, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
  4. MINGLI ZHENG & Robert McMillan & SAJID ANWAR, 2005. "Bidding Behavior in Competing Auctions: Evidence from eBay," Microeconomics 0505001, EconWPA. [Downloadable!]
    Other versions:
  5. Gary E Bolton & Axel Ockenfels, 2007. "The Limits of Trust in Economic Transactions - Investigations of Perfect Reputation Systems," Working Paper Series in Economics 33, University of Cologne, Department of Economics. [Downloadable!]
    Other versions:
  6. Doron Sonsino, 2008. "Disappointment Aversion in internet Bidding-Decisions," Theory and Decision, Springer, vol. 64(2), pages 363-393, March. [Downloadable!] (restricted)
  7. Gary E. Bolton & Elena Katok & Axel Ockenfels, 2003. "How Effective are Electronic Reputation Mechanisms? An Experimental Investigation," Working Paper Series in Economics 3, University of Cologne, Department of Economics. [Downloadable!]
  8. Steve Anderson & Daniel Friedman & Garrett Milam & Nirvikar Singh, 2004. "Buy it Now: A Hybrid Internet Market Institution," Santa Cruz Department of Economics, Working Paper Series 1023, Department of Economics, UC Santa Cruz. [Downloadable!]
    Other versions:
  9. Bohnet, Iris & Huck, Steffen, 2003. "Repetition and Reputation: Implications for Trust and Trustworthiness in the Short and in the Long Run," Working Paper Series rwp03-048, Harvard University, John F. Kennedy School of Government. [Downloadable!]
  10. Yannick Gabuthy & Nicolas Jacquemet & Nadège Marchand, 2008. "Does Resorting to Online Dispute Resolution Promote Agreements? Experimental Evidence," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00259453_v1, HAL. [Downloadable!]
    Other versions:
  11. Gary E. Bolton & Ben Greiner & Axel Ockenfels, 2009. "Engineering Trust - Reciprocity in the Production of Reputation Information," Discussion Papers 2009-02, School of Economics, The University of New South Wales. [Downloadable!]
    Other versions:
  12. Luis Cabral & Ali Hortacsu, 2006. "The Dynamics of Seller Reputation: Evidence from eBay," Working Papers 06-32, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
  13. Yvonne Durham & Matthew Roelofs & Stephen Standifird, 2004. "eBay's Buy-It-Now Function: Who, When, and How," Topics in Economic Analysis & Policy, Berkeley Electronic Press, vol. 4(1), pages 1316-1316. [Downloadable!] (restricted)
  14. Luis Cabral & Ali Hortacsu, 2004. "The Dynamics of Seller Reputation: Theory and Evidence from eBay," NBER Working Papers 10363, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  15. Tobias J. Klein & Christian Lambertz & Giancarlo Spagnolo & Konrad O. Stahl, 2005. "Last Minute Feedback," Discussion Papers 62, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich, revised Mar 2006. [Downloadable!]
    Other versions:
  16. Dellarocas, Chrysanthos, 2003. "Efficiency and Robustness of Binary Feedback Mechanisms in Trading Environments with Moral Hazard," Working papers 4297-03, Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
  17. David Masclet (CREM - CNRS) & Thierry Pénard (CREM – CNRS), 2006. "Pourquoi évaluer son partenaire lors d’une transaction à la eBay ? une approche expérimentale," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 200620, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS. [Downloadable!]
  18. Anderson, Steven & Friedman, Daniel & Milam, Garrett & Singh, Nirvikar, 2007. "Seller strategies on eBay: Does size matter?," MPRA Paper 4324, University Library of Munich, Germany. [Downloadable!]
  19. Anderson, Steven & Friedman, Daniel & Milam, Garrett & Singh, Nirvikar, 2007. "Buy it now: A hybrid market institution," MPRA Paper 4322, University Library of Munich, Germany. [Downloadable!]
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