Seller Reputation, Information Signals, and Prices of Heterogeneous Goods on eBay
at the Andrew Young School of Policy Studies

"Seller Reputation, Information Signals, and Prices of Heterogeneous Goods on eBay" (pdf)

by James Alm and Mikhail I. Melnik
January 2004

Keywords: e-commerce, seller reputation, online auctions, willingness to pay

In online commerce, a buyer cannot directly examine the product and has to trust the seller for the product description and delivery. In this setting, the reputation of the seller, together with any other information signals on the quality of the product, can play an important role in determining the buyer's willingness to pay for the good. However, while the impact of reputation on willingness to pay for homogeneous goods has been examined, its impact on heterogeneous goods is largely unknown. This paper examines the effects of the seller's reputation and information signals in online auctions, using U.S. silver Morgan dollar coins in "Almost Uncirculated" condition that are sold on eBay. The empirical results indicate that a seller's overall reputation typically has a positive and statistically significant impact on a buyer's willingness to pay in online auctions. The results also indicate that negative comments about a seller have large negative impact on price. However, these reputational effects tend to be of greater importance for more heterogeneous goods, and are also sensitive to the presence of other information signals about the item-specific characteristics of the good.

Comments and questions regarding this paper may be directed to James Alm at jalm@gsu.edu.