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Cited by 149Auction Theory and ApplicationsDigital Platforms and EconomicsLaw, Economics, and Judicial Systems

The Dynamics of Seller Reputation: Theory and Evidence from eBay

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Cabral, Luis, Hortacsu, Ali·2004·National Bureau of Economic Research
DOI 10.3386/w10363
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Abstract

We propose a basic theoretical model of eBay's reputation mechanism, derive a series of implications and empirically test their validity.Our theoretical model features both adverse selection and moral hazard.We show that when a seller receives a negative rating for the first time his reputation decreases and so does his effort level.This implies a decline in sales and price; and an increase in the rate of arrival of subsequent negative feedback.Our model also suggests that sellers with worse records are more likely to exit (and possibly re-enter under a new identity), whereas better sellers have more to gain from "buying a reputation" by building up a record of favorable feedback through purchases rather than sales.Our empirical evidence, based on a panel data set of seller feedback histories and cross-sectional data on transaction prices collected from eBay is broadly consistent with all of these predictions.An important conclusion of our results is that eBay's reputation system gives way to strategic responses from both buyers and sellers.

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  • eBay's evaluative infrastructures provided anonymous and remote individuals with the trust to transact, without eBay being able to directly control or assure quality, safety, or legality.

    “Providing knowledge about people that would otherwise be private such as their reputation, history, and status (Wolf & Mahunna, 2005), and establishing the properties of products as the foundation of enforceable contract (Lewis 2011), the evaluative infrastructures provided anonymous and remote individuals who were unlikely to have repeat interactions and were selling items that cannot be touched,”

    From Evaluative infrastructures: Accounting for platform organization (2017) · cites this paper as Cabral & Hortaçsu, 2004

  • Sellers engage in gaming activities such as 'shrilling' and 'feedback bombing', and initial negative feedback increases the chances of receiving subsequent negative feedback.

    “Consistent with the accounting literature, sellers engage in gaming activities (Argyris, 1990) such as “shrilling” and “feedback bombing”, as well as getting caught up in self-fulfilling prophecies, whereby initial negative feedback increases the chances of receiving subsequent negative feedback (Cabral & Hortacsu, 2004: Saeedi et al, 2013).”

    From Evaluative infrastructures: Accounting for platform organization (2017) · cites this paper as Cabral & Hortacsu, 2004

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Authors
Cabral, L., & Hortacsu, A.
Venue
National Bureau of Economic Research
Publisher
National Bureau of Economic Research
Published
2004-03
DOI
10.3386/w10363
OpenAlex
W1480456461
Cited by
149
References
4
Citations by year
2026: 1 · 2025: 2 · 2023: 3 · 2022: 5 · 2021: 1 · 2020: 1 · 2019: 2 · 2018: 5 · 2017: 4 · 2016: 2 · 2015: 4 · 2014: 6 · 2013: 8 · 2012: 11
Type
report
Language
en
Open access
Locations
  • National Bureau of Economic Research (publishedVersion)
  • RePEc: Research Papers in Economics (submittedVersion)
  • SSRN Electronic Journal (submittedVersion)
Topics
  • Social Sciences › Decision Sciences › Management Science and Operations Research › Auction Theory and Applications
  • Social Sciences › Business, Management and Accounting › Strategy and Management › Digital Platforms and Economics
  • Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Law, Economics, and Judicial Systems
Keywords
seller reputation, online marketplaces, eBay, adverse selection, moral hazard, negative feedback, strategic behavior, transaction prices, online auctions

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