Reputation, Certification, Warranties, and Information as Remedies for Seller-Buyer Information Asymmetries: Lessons from the Online Comic Book Market

Posted: 10 Nov 2009

See all articles by Michaël Dewally

Michaël Dewally

Towson University - Department of Finance

Louis H. Ederington

University of Oklahoma - Division of Finance

Date Written: 2006

Abstract

There is information asymmetry between the seller andbuyer about the quality of comic books offered on eBay online auctions. Thisstudy examines the different signaling strategies that sellers use to remedythe information asymmetry. Four types of common signals are considered: thirdparty certification, reputation, warranties, and information disclosure. Datawere compiled about online comic book sales in 3,664 eBay auctions endingbetween January and June 2001 for 30 collectible comic books. The goal was to test how signaling actions taken by a seller to resolveinformation asymmetry affect price. Certified comics are found to sell forabout 58 to 59 percent more than uncertified comics. Reputation mattersconsiderably less than certification. How much is known about the seller, andwhether it is good or bad, affects the price. Warranties seem not to affectprice. Failing to provide scans of comics reduces the price by about 11 to 13percent. More specifically, it was found that price increases as proportion ofnegative feedback declines and uncertainty about the proportion declines. Sincereputation is a long-run strategy, three other signals are examined.Experienced sellers with well-established reputations are cognizant of thebenefits of providing certification. Bidders penalize failure to seekcertification when doing so would be in the interest of an honest seller;certification substantially affects price even when there is no reason to doubtthe quality of uncertified comics. While cost of certification is substantial,many sellers pay for it. Reputation matters much more when a comic book has notbeen certified. (TNM)

Keywords: Signaling theory, Firm image, Credibility, Reliability, Electronic commerce, Information asymmetry, Valuation, Information utilization, Certification, Prices

Suggested Citation

Dewally, Michaël and Ederington, Louis H., Reputation, Certification, Warranties, and Information as Remedies for Seller-Buyer Information Asymmetries: Lessons from the Online Comic Book Market (2006). The Journal of Business, Vol. 79, Issue 2, p. 693-729 2006. Available at SSRN: https://ssrn.com/abstract=1503251

Michaël Dewally (Contact Author)

Towson University - Department of Finance ( email )

8000 York Road
Suite 316 L
Baltimore, MD 21252-0001
United States
410-704-4902 (Phone)

Louis H. Ederington

University of Oklahoma - Division of Finance ( email )

Norman, OK 73019
United States
405-325-5591 (Phone)
405-325-7688 (Fax)

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