Reputation, Trust, and Rebates: How Online Auction Markets Can Improve Their Feedback Mechanisms

Journal of Economics and Management Strategy, Forthcoming

30 Pages Posted: 1 Jun 2008 Last revised: 26 Aug 2009

See all articles by Lingfang (Ivy) Li

Lingfang (Ivy) Li

Shanghai University of Finance and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 19, 2009

Abstract

Reputation systems constitute an important institution to help sustain trust in online auction markets. However, only half of buyers leave feedback after transactions, and nearly all of it is positive. In this paper, I propose a mechanism whereby sellers can provide rebates (not necessarily in monetary form) to buyers contingent upon buyers' provision of reports. Using a game theoretical model, I show how the mechanism can increase unbiased reporting. There exists a pooling equilibrium where both good and bad sellers choose the rebate option, even though their true types are revealed through feedback. The mechanism also induces bad sellers to improve the quality of the contract.

Keywords: reputation, trust, feedback mechanism, asymmetric information, online

JEL Classification: C72, C73, D82, L15, L86

Suggested Citation

Li, Lingfang (Ivy), Reputation, Trust, and Rebates: How Online Auction Markets Can Improve Their Feedback Mechanisms (April 19, 2009). Journal of Economics and Management Strategy, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1120881 or http://dx.doi.org/10.2139/ssrn.1120881

Lingfang (Ivy) Li (Contact Author)

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, Shanghai 200433
China

HOME PAGE: http://www.ivy-li.net

Register to save articles to
your library

Register

Paper statistics

Downloads
250
rank
114,537
Abstract Views
1,380
PlumX Metrics