Working Paper: CEPR ID: DP9501
Authors: Tobias Klein; Christian Lambertz; Konrad O. Stahl
Abstract: We study the effects of improvements in eBay's rating mechanism on seller exit and continuing sellers' behavior. Following a large sample of sellers over time, we exploit the fact that the rating mechanism was changed to reduce strategic bias in buyer rating. That improvement did not lead to increased exit of poorly rated sellers. Yet, buyer valuation of the staying sellers ? especially the poorly rated ones ? improved significantly. By our preferred interpretation, the latter effect results from increased seller effort; also, when sellers have the choice between exiting (a reduction in adverse selection) and improved behavior (a reduction in moral hazard), then they prefer the latter because of lower cost.
Keywords: adverse selection; anonymous markets; moral hazard; reputation building mechanisms
JEL Codes: D83; L15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| DSRs introduction in May 2007 (Y20) | improvement in buyer satisfaction with sellers (L14) |
| DSRs introduction in May 2007 (Y20) | sellers exerting more effort in delivering quality goods (L15) |
| removal of sellers' ability to leave negative ratings in May 2008 (D44) | improvement in ratings of poorly rated sellers (L15) |
| removal of sellers' ability to leave negative ratings in May 2008 (D44) | sellers focusing on enhancing performance (L25) |
| removal of sellers' ability to leave negative ratings in May 2008 (D44) | no increased exit rate among poorly rated sellers (L81) |