We examine the link between price, quality, seller claims, and seller reputation in Internet auctions. After purchasing actual baseball cards and having them professionally graded, we find that some buyers in the online graded market are misled by incredible claims of quality. They pay higher prices but do not receive better quality and, in fact, are defrauded more often. Online seller reputation is effective for identifying good‐faith sellers. But conditional on completed auctions, reputable sellers do not provide better quality. Evidence also suggests that high‐claim sellers target less‐experienced buyers. We attribute these patterns to two loopholes in the eBay rating system. We benefited from the comments of Austan Goolsbee, Raphael Thomadsen, John Shea, Dan Vincent, David Reiley, Larry Ausubel, Peter Cramton, V. Joseph Hotz, Jeff Smith, Jimmy Chan, Vincent Crawford, Mark Duggan, and attendees at numerous seminars and conferences. We are particularly grateful to Seth Sanders and John List for their constructive advice at the early stage of the research, to Timothy Bresnahan, Rachel Kranton, and Thomas Hubbard for their detailed suggestions in reshaping earlier versions, and to Editor Ariel Pakes and two anonymous referees for their careful readings. Special thanks to eight friends who acted as our agents in purchasing baseball cards in retail markets, and to numerous sports card store owners who shared their insights on the sportscard industry. Excellent research assistance from Randy Alexander Moore and Krzysztof Fizyta is gratefully acknowledged. Any remaining errors are ours.

This paper investigates how the Internet, as a bundle of transaction cost savings and information problems, defines the boundary between online and offline trading. Sportscards provide an excellent example: credible quality information is difficult to obtain online, but Internet auction trading offers substantial search cost savings. Moreover, the existence of professional sportcard grading offers a potential solution to online information problems, and allows us to experimentally detect the magnitude of the online information problems for ungraded cards. Set up in a general equilibrium framework, we model and test (1) the online and offline segmentation in product quality, (2) the evolution of retail outlets after the Internet came into place, and (3) the evolution of supporting industries such as professional grading and card manufacturing. Empirical evidence suggests that the introduction of new online markets produces not only quality segmentation, but also fosters the growth of an industry that helps alleviate the online information problems, and encourages the introduction of products best suited for online trading.

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Using sportscard grading as an example, we employ field experiments to investigate empirically the informational role of professional certifiers. In the past 20 years, professional grading of sportscards has evolved in a way that provides a unique opportunity to measure the information provision of a monopolist certifier and that of subsequent entrants. Empirical results suggest three patterns: the grading certification provided by the first professional certifier offers new information to inexperienced traders but adds little information to experienced dealers. This implies that the certification may reduce the information asymmetry between informed and uninformed parties. Second, compared with the incumbent, new entrants adopt more precise signals and use finer grading cutoffs to differentiate from the incumbent. Third, our measured differentiated grading cutoffs map consistently into prevailing market prices, suggesting that the market recognizes differences across multiple grading criteria.

This article describes and evaluates the merits of Kauai County’s use of the property tax to capture rents from tourism and provide property tax relief to local homeowners. Because tourist accommodations are more capital intensive than other real estate, Kauai’s proposal to split the standard uniform rate into two separate rates—one on land and the other, higher rate on improvements—results in heavier tax burdens for the tourist industry relative to other sectors of the local economy. We conclude that such an approach works well for Kauai and communities that desire slower and lower-density development but may not work as well for others that wish to encourage tourism investment.