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

53 Pages Posted: 21 May 2004

See all articles by Michaël Dewally

Michaël Dewally

Towson University - Department of Finance

Louis H. Ederington

University of Oklahoma - Division of Finance

Abstract

Signaling strategies, which sellers of high quality securities, goods, or services employ to differentiate their products from those of lower quality, include: (1) developing a reputation for high quality, (2) certification by a respected third party, (3) warranties, and (4) information disclosure. These signaling strategies are compared using data from the online auction market for classic comic books. This market has several advantages: (1) the information asymmetry is substantial, (2) good measures of reputation are available, and (3) all four signals are common. Third party certification of a comic's quality sends the strongest signal. On average, certified copies sell for roughly fifty percent more than uncertified comics of the same claimed quality, and the percentage differential is higher at the higher grades. It appears that part of the price differential between certified and uncertified comics is due to risk reduction. Books from sellers with positive reputations sell for more than books from sellers with negative reputations, and books from sellers with established reputations sell for more than those from seller's with fledgling reputations. However, reputation has less impact on the price than certification. There is no evidence that books with warranties sell for more than those without. Apparently, buyers either view these warranties as too costly to enforce or they reason that sellers of truly high quality comics should seek certification. We also explore which signals are substitutes or complements, and how choice among the other three strategies depends on the reputation of the seller and other information available to the buyer.

Keywords: Reputation, certification, warranties, information asymmetry

JEL Classification: D82, D83, D12, D44

Suggested Citation

Dewally, Michaël and Ederington, Louis H., Reputation, Certification, Warranties, and Information as Remedies for Seller-Buyer Information Asymmetries: Lessons from the On-Line Comic Book Market. Journal of Business, Forthcoming. Available at SSRN: https://ssrn.com/abstract=548383

Michaël Dewally

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 (Contact Author)

University of Oklahoma - Division of Finance ( email )

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

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