THE DYNAMICS OF SELLER REPUTATION: EVIDENCE FROM EBAY^*

Abstract

We construct a panel of eBay seller histories and examine the importance of eBay's reputation mechanism. We find that, when a seller first receives negative feedback, his weekly sales rate drops from a positive 7% to a negative 7%; subsequent negative feedback ratings arrive 25% more rapidly than the first one and don't have nearly as much impact as the first one. We also find that a seller is more likely to exit the lower his reputation is; and that, just before exiting, sellers receive more negative feedback than their lifetime average.We consider a series of theoretical models and measure them against these empirical results. Regardless of which theoretical model best explains the data, an important conclusion of our paper is that eBay's reputation system gives way to noticeable strategic responses from both buyers and sellers.

The Logic of Collective Rating

“…Our model has several implications which are in line with the rating-influences-sales literature [1][2][3][4][5][6][7][8][9][10]. First, very-early ratings should be mistrusted by consumers because of fake votes, providing rationality grounds for the empirical finding that high volume of votes in ratings, by itself, has been shown to have a positive effect on sales.…”

“…The average number of votes is 155 (90% between 61 and 276 votes). The impact of rankings on sales [1][2][3][4][5][6][7][8][9][10] is reflected in our data by that fact that products attracting more votes also tend to have higher final ratings (coefficient 0.0006, p-value <0.001).…”

“…Across different types of products and online sales platforms, rating mechanisms have been shown to improve sales [1][2][3][4][5][6][7][8][9][10] and consumer satisfaction [11], despite the issue of fake/manipulated reviews [12][13][14]. From the point of view of the consumer, understanding the representativeness of ratings is key.…”

Rosettes, Remingtons and Reputation: Establishing Potential Determinants of Leopard (Panthera pardus) Trophy Prices Across Africa

“…Several studies in the economic literature suggest reputation and prominence of large firms has significant impact on the price of their products/services (Fombrun & Shanley, 1990). For example, a seller's reputation on the online trading platform 'eBay' is an important determinant of the price of their product (Melnik & Alm, 2002;Cabral & Hortacsu, 2010). Leopard hunts are typically two weeks long, and the hunt itself requires prolonged time (often days) spent by the hunter and his outfitter in a hunting hide (normally stationed close to a bait).…”

Selling Money on Ebay: A Field Study of Surplus Division

“…7 By the nature of data it studies, our paper contributes to the growing economic literature on eBay users' behaviour. Interestingly, this literature focuses predominantly on the effects of users' reputation on transaction prices (e.g., Resnick et al (2006), Cabral and Hortascu (2010), Nosko and Tadelis (2015)) or the benefits from gaming the mechanism, such as snipe bidding (e.g. Roth and Ockenfels (2002), Ely and Hossain (2009)).…”