Price, quality, and reputation: evidence from an online field experiment

Abstract

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.

Landing the First Job: The Value of Intermediaries in Online Hiring

“…If no further new affiliates are observed in the data, the agency is viewed as failing. 32 The results suggest that an agency is significantly less likely to grow in size when the most recent affiliate has received bad feedback, the baseline category. The hazard ratio of 0.831 in Column 1 on the indicator for having received good feedback, is significantly less than one, indicating that an agency is less likely to fail when the last affiliate receives good feedback.…”

“…Do agencies retain workers with good feedback? Table 10 establishes that very few workers remain on the site after having 32 It is not possible to evaluate agency failure using the job prospects of existing experienced affiliates, as these workers have public individual feedback scores and the agency plays a small role in their ongoing career prospects. …”

Internet Auction Features as Quality Signals

“…However, this information disclosure is "cheap talk" and does not incur any cost to the seller (Baker and Song 2007;Jin and Kato 2006). Therefore, it does not qualify as a signaling device.…”

“…For example, Dewally and Ederington (2006) note that it typically costs the seller $20-$55 to have a comic book certified by Comics Guaranty, and according to Jin and Kato (2006), professional grading of baseball cards costs $6-$20 per card when performed by the Professional Sports Authenticator or Beckett Grading Service. These certification costs represent nonrefundable, upfront signaling costs.…”

“…Several studies of Internet auctions (i.e., Bajari and Hortacsu 2003;Jin and Kato 2006;Yin 2006) show that when they anticipate more bidders, rational bidders strategically shade their bids by reducing the amount they submit on each bidding occasion. Specifically, Bajari and Hortacsu (2003) show that buyers of collectable coins bid 10% less than their own private signals to compensate for the winner's curse.…”