Buying Reputation as a Signal of Quality: Evidence from an Online Marketplace∗
نویسندگان
چکیده
Seller reputation generated by consumers leaving feedback is critical to foster trust in online marketplaces. Yet feedback may be under-provided if consumers are not rewarded to leave feedback. Signaling theory predicts that only high quality sellers would reward buyers for truthful feedback. We explore this scope for signaling using Taobao’s “reward-for-feedback” mechanism and find that items with rewards generate sales that are nearly 30% higher and are sold by higher quality sellers, consistent with a signaling equilibrium. The market design implication is that marketplaces can benefit from allowing sellers to use rewards to build reputations and signal their high quality in the process. JEL Classifications: D47, D82, L15, L86.
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