How Valuable Is a Good Reputation? A Sample Selection Model of Internet Auctions

Livingston (2005) finds a positive effect of reputation on the probabilities of receiving a bid and of a sale happening, as well as on the sale price, especially for the first positive reviews.

“he finds a positive effect of reputation on the probabilities of receiving a bid and of a sale happening, as well as on the sale price, especially for the first positive reviews.”

Despite Livingston's more meaningful economic magnitudes, endogeneity due to lack of random assignment remains a concern.

“Note, however, that despite offering results that have more meaningful economic magnitudes, the problem of endogeneity due to a lack of random assignment is still of some concern.”

Livingston (2005) presents a theoretical model predicting positive, yet decreasing returns to reputation.

“Livingston presents a theoretical model that predicts positive, yet decreasing returns to reputation.”

In Livingston's data, the first 1-25 reviews increase payment by $20.42 on average, approximately 5% of an average price of $409.96.

“His results suggest that, on average, the first 1-25 reviews increase payment by $20.42 (approximately 5% of an average price of $409.96).”

Ratings do not affect the price paid for the card, consistent with Livingston (2005) regarding the reputation premium.

“however, ratings do not affect the price paid for the card, consistent with Livingston (2005) regarding the reputation premium.”

Moving from any two subsequent quartiles of reputation has no significant effect on sale price, consistent with Livingston's theoretical prediction.

“In comparison, moving from any two subsequent quartiles has no significant effect on sale price, consistent with the article's theoretical prediction.”