Buyers pay for and sellers invest in a good reputation: More evidence from eBay

Social dilemmas in the sharing economy

“…Perhaps the best-known example of an institutional mechanism to promote cooperation is the wide-spread use of reputation systems or "rating systems" 7 , allowing users to publicly "rate" their experience with their exchange partners through some type of fixed and often quantified format (e.g., the ubiquitous "five stars") or through a free-form qualitative format (e.g., written reviews). Conceptually, reputation systems promote trust and cooperation in much the same way social embeddedness does: by allowing actors to monitor each other's past behavior, potential defectors are incentivized to cooperate or deterred from entering the market (Bolton et al 2004b;Przepiorka 2013;Resnick and Zeckhauser 2002;Tadelis 2016). Meanwhile there is ample empirical evidence from lab experiments (Bolton et al 2004b(Bolton et al , 2004a, field experiments (Resnick and Zeckhauser 2006) and observational studies on online markets (Diekmann et al 2014;Kollock 1999b;Przepiorka et al 2017;Resnick and Zeckhauser 2002) that such reputation systems indeed tend to promote trust, and as such these systems are widely considered to be the key innovation that makes trust in online interactions (including sharing economy interactions) feasible (e.g., Botsman and Rogers 2010).…”

Order without Law: Reputation Promotes Cooperation in a Cryptomarket for Illegal Drugs

“…Once these sellers have built their reputations, they can charge higher prices, which will compensate them for their initial investment in reputation (Friedman and Resnick, 2001;Przepiorka, 2013;Shapiro, 1983). From this reasoning it follows that sellers with a better reputation will achieve higher prices because buyers are willing to pay higher prices for these sellers' products.…”

A New Kind of Economy is Born−Social Decision-Makers Beat the “Homo Economicus”

“…Reputation creates benefits for buyers and sellers. A recent study shows that good reputation allows sellers to take a higher price, while customers can expect a better service [10]. Reputation systems may also promote better quality as well as socially and environmentally friendly production.…”