Working Paper: NBER ID: w22584
Authors: Lingfang Ivy Li; Steven Tadelis; Xiaolan Zhou
Abstract: Reputation is critical to foster trust in online marketplaces, yet leaving feedback is a public good that can be under-provided unless buyers are rewarded for it. Signaling theory implies that only high quality sellers would reward buyers for truthful feedback. We explore this scope for signaling using Taobao's "reward-for-feedback" mechanism and find that items with rewards generate sales that are nearly 30% higher and are sold by higher quality sellers. The market design implication is that marketplaces can benefit from allowing sellers to use rewards to build reputations and signal their high quality in the process.
Keywords: reputation; online marketplaces; feedback mechanisms; signaling theory
JEL Codes: D47; D82; L15; L86
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher quality sellers (L15) | Adoption of RFF (Q52) |
| Adoption of RFF (Q52) | Sales increase (F61) |
| Adoption of RFF (Q52) | Detailed feedback from buyers (D44) |
| Detailed feedback from buyers (D44) | Reputation building (Z13) |
| Adoption of RFF (Q52) | Quality of feedback received (L15) |
| Adoption of RFF (Q52) | Quantity of feedback received (C91) |