Financial Value of Reputation: Evidence from the Ebay Auctions of Gmail Invitations
Journal of Industrial Economics, Forthcoming.
39 Pages Posted: 10 Aug 2004 Last revised: 16 Apr 2010
Date Written: April 12, 2010
In a marketplace of repeated transactions with asymmetric information, theory predicts that sellers with a good reputation have a higher probability of sale and receive a higher transaction price. In this article, I test this theory using more than 55,000 auctions of "Gmail invitations" on eBay, essentially a market of homogeneous goods with non-enforceable contracts. This is an ideal environment to test the theory because it allows a clean separation of the reputation effects from other controlling factors. This study provides evidence in favor of the theoretical predictions because sellers who improve their reputation from the lowest to the next quintile experience a 6.2% higher probability of sale and a 6.1% hike in the implied buyer valuation after adjusting for truncation bias from failed auctions and explicitly controlling for seller heterogeneity such as skill. This study also shows that in addition to a dimension of reputation universal across different product markets, the product-specific dimension of reputation significantly affects the auction outcomes.
Keywords: Information Asymmetry, Reputation Effects, eBay Auctions, Gmail Invitations
JEL Classification: D82, D44, L15, G14
Suggested Citation: Suggested Citation