Price, Quality and Reputation: Evidence From An Online Field Experiment

Ginger Jin and Andrew Kato , RAND Journal of Economics 37(4) , 983-1005 , December 2006.

This paper examines the link between price, quality, seller claims and seller reputation in Internet auctions. To obtain a precise measure of quality, we purchased actual baseball cards and have them professionally graded. These cards were systematically purchased so half of the sample came from sellers making high quality claims and the other half from sellers making modest or no claim. We compare the quality data to the prices paid by online buyers for goods with similar claims. We find that some buyers in the online ungraded market are misled by non-credible claims of quality. They pay higher prices but do not receive better quality and in fact are defrauded more often. Online seller reputation is found to be 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 data patterns to misleading signals in the online ungraded market and two loopholes in the eBay rating system, namely universal ratings and costless switching of anonymous identities.

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