Working Paper: NBER ID: w20830
Authors: Chris Nosko; Steven Tadelis
Abstract: We argue that reputation mechanisms used by platform markets suffer from two problems. First, buyers may draw conclusions about the quality of the platform from single transactions, causing a reputational externality across sellers. Second, for a variety of reasons we discuss, reputations will be biased. We document these problems using eBay data and claim that platforms can benefit from identifying and promoting higher quality sellers. We create an unobservable measure of seller quality and demonstrate the benefits of our approach through a controlled experiment that prioritizes better quality sellers. We highlight the importance of reputational externalities and chart an agenda that aims to create more realistic models of platform markets.
Keywords: No keywords provided
JEL Codes: D47; D82; L15; L21; L86
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| feedback bias (D91) | observable reputation measures (C91) |
| poor transaction experience (L14) | overall trust in the marketplace (L81) |
| lower epp scores (I24) | likelihood of returning to the platform (C41) |
| seller quality (measured by effective percent positive, epp) (L15) | buyer retention (M51) |
| higher quality sellers (L15) | likelihood of future purchases (D12) |