Reputation in an Internet auction market

Document Type

Article

Publication Date

10-1-2002

Abstract

We investigate how market participants possessing varying degrees of anonymity reduce asymmetric information costs in an electronic auction market using a quantifiable measure of reputation. The data suggest that purchasers in this self-enforcing market use reputation to price information asymmetries associated with counterparty risks. The results provide direct empirical evidence of an economic incentive for investing in reputation. The continually observable feedback of participants indicates that high seller reputation signals preferred traits, including advertised service accuracy, product description accuracy, delivery efficiency, and posttransaction communication. Despite some imperfections, the reputation measure represents clear differences in expected performance between high-reputation and low-reputation counterparties.

Publication Source (Journal or Book title)

Economic Inquiry

First Page

633

Last Page

650

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