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The Value of Reputation on Ebay: A Controlled Experiment

26 Pages Posted: 13 Mar 2003  

Paul Resnick

University of Michigan at Ann Arbor - School of Information

Richard J. Zeckhauser

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

John Swanson

Independent

Kate Lockwood

University of Michigan at Ann Arbor - School of Information

Date Written: July 2002

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.

Keywords: Economics - Microeconomics, Information Technology, Regulation

Suggested Citation

Resnick, Paul and Zeckhauser, Richard J. and Swanson, John and Lockwood, Kate, The Value of Reputation on Ebay: A Controlled Experiment (July 2002). KSG Working Paper Series No. RWP03-007. Available at SSRN: https://ssrn.com/abstract=385206 or http://dx.doi.org/10.2139/ssrn.385206

Paul Resnick

University of Michigan at Ann Arbor - School of Information ( email )

304 West Hall
550 East University Avenue
Ann Arbor, MI 48109-1092
United States
313-647-9458 (Phone)

HOME PAGE: http://www.si.umich.edu/~presnick/

Richard J. Zeckhauser (Contact Author)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
617-495-1174 (Phone)
617-496-3783 (Fax)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-1174 (Phone)
617-384-9340 (Fax)

John Swanson

Independent

No Address Available

Kate Lockwood

University of Michigan at Ann Arbor - School of Information ( email )

304 West Hall
550 East University
Ann Arbor, MI 48109-1092
United States

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