Trust-building on the Internet: evidence from eBay

Online auction web sites provide a convenient yet risky trading venue for the participants. The uncertainty about the product quality and the credibility of the traders, however, may impede the liquidity and efficiency of the trades in online auctions. This research seeks to establish a framework to better assess the effect of a seller’s feedback “reputation” on the closing price of an online auction. In contrast to the literature on reputation in Internet auction, we claim and prove that buyers assess a seller’s reputation from her feedbacks related to her selling activities only but not those from both sales and purchases. We build a model to illustrate how this reputation system works and test the hypotheses with data collected from the eBay web site on auctions of Apple iPod MP3 players. It is found that (1) the numbers of a seller’s positive and negative comments from her buyers solely are significantly correlated with the bidding price of her sales transactions; (2) the numbers of a seller’s positive or negative comments earned in her purchasing transactions are not significant in explaining the bidding price of her sales transactions; (3) negative comments are weighted more heavily than positive ones.