Reputation, Information Signals, and Willingness to Pay for Heterogeneous Goods in Online Auctions

27 Pages Posted: 10 Oct 2003

See all articles by Mikhail Ion Melnik

Mikhail Ion Melnik

Niagara University - Commerce Department

James Alm

Tulane University

Date Written: February 2003

Abstract

In online commerce, a buyer cannot directly examine the product and has to rely heavily on the reliability of the seller. In this setting, the reputation of the seller, together with any other information signals on the quality of the product, can play an important role in determining the buyer's willingness to pay for the good. However, while the impact of reputation on willingness to pay for homogeneous goods has been examined, its impact on heterogeneous goods is largely unknown. This paper examines the effects of the seller's reputation and information signals in online auctions, using U.S. silver Morgan dollar coins in almost uncirculated condition that are sold on eBay. The empirical results indicate that a seller's overall reputation has a positive and statistically significant impact on a buyer's willingness to pay in online auctions, an impact that is larger than for homogeneous goods. The results also indicate that negative comments about a seller have larger, and negative, impact on price.

Keywords: online auctions, auctions, online commerce, reputation, willingness to pay, trust, information signaling

JEL Classification: D44, D8, L15

Suggested Citation

Melnik, Mikhail Ion and Alm, James, Reputation, Information Signals, and Willingness to Pay for Heterogeneous Goods in Online Auctions (February 2003). Available at SSRN: https://ssrn.com/abstract=452820 or http://dx.doi.org/10.2139/ssrn.452820

Mikhail Ion Melnik (Contact Author)

Niagara University - Commerce Department ( email )

P.O. Box 2201
Niagara University, NY 14109
United States

James Alm

Tulane University ( email )

United States
5048628344 (Phone)

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