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Does Cheap Talk Affect Market Outcomes? Evidence from eBay

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  • Daniel W. Elfenbein
  • Raymond Fisman
  • Brian McManus

Abstract

We study the use of and response to cheap talk by firms and their consumers, focusing on unverifiable promises of charitable donations on eBay. For transactions during March 2005 – May 2006, cheap talk listings have lower sales probabilities but sell at higher prices when they are successful. The negative relationship between cheap talk and sales is concentrated in the months following Hurricane Katrina, a time when both verifiable and unverifiable charity-related listings increased dramatically. Finally, we show that cheap talk sellers have significantly lower quality ratings than sellers who make verifiable donations. Collectively, our results suggest that most buyers (justifiably) avoid cheap talk listings when credible quality signals are available, thus limiting the extent of cheap talk under these conditions.

Suggested Citation

  • Daniel W. Elfenbein & Raymond Fisman & Brian McManus, 2018. "Does Cheap Talk Affect Market Outcomes? Evidence from eBay," NBER Working Papers 24437, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:24437
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    Cited by:

    1. Kolcava, Dennis, 2020. "Do citizens hold business accountable for greenwashing by demanding more government intervention?," OSF Preprints sj4dk, Center for Open Science.
    2. Aflagah, Kodjo & Bernard, Tanguy & Viceisza, Angelino, 2022. "Cheap talk and coordination in the lab and in the field: Collective commercialization in Senegal," Journal of Development Economics, Elsevier, vol. 154(C).
    3. Lee, Jaesun & Shapiro, Dmitry, 2023. "Quality communication via cheap-talk messages in experimental auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 212(C), pages 74-107.
    4. Jiang, Zhong-Zhong & Zhao, Jinlong & Zhang, Yinghao & Yi, Zelong, 2022. "Unraveling the cheap talk’s informativeness of product quality in supply chains: A lying aversion perspective," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 166(C).
    5. Brownen-Trinh, Ruby & Orujov, Ayan, 2023. "Corporate socio-political activism and retail investors: Evidence from the Black Lives Matter campaign," Journal of Corporate Finance, Elsevier, vol. 80(C).

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    More about this item

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • K2 - Law and Economics - - Regulation and Business Law
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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