Effects of a reputation feedback system on an online consumer-to-consumer auction market

This research establishes a dynamic game-theoretic model that interprets the mechanism of reputation feedback systems in online consumer-to-consumer (C2C) auction markets. Based on the model, a numerical study is conducted to reveal the effects of feedback systems on auction markets. The study shows that the existence of feedback systems greatly improves the performance of online C2C auction markets: buyers are more willing to trade and gain more benefit from the transactions; sellers' honest behavior is encouraged, as honest sellers' gains are increased and dishonest sellers' gains are reduced. It also offers practical insights on the design of a feedback system: rewarding an honestly-behaving seller is less effective on promoting market performance than punishing a cheating seller. © 2007 Elsevier B.V. All rights reserved.