The Value of a Good Reputation Online: An Application to Art Auctions

Abstract

Using a unique dataset of art auctions on eBay, we conduct an empirical analysis of the value of a seller's online reputation. Several aspects distinguish our work from most existing research. We analyze a heterogeneous panel data consisting of a large number of observations over a large period of time, including significant variation in reputation across and within sellers. The panel structure of our dataset allows us to employ fixed effects techniques to control for observed and unobserved differences across auctions. The existing literature suggests a marginally significant, and small in magnitude, impact of reputation on sale price. In contrast, our results point to a highly significant, and sizable, impact of reputation on the behavior of buyers and sellers and on market outcomes. The data suggest that sellers on eBay exert significant effort to avoid a negative feedback. Our analysis reveals a significant impact of the eBay feedback rating large enough to be consistent with this observation.

Keywords: Reputation, eCommerce, English Auctions, Internet markets

JEL Classification: C33, C34, D44, L14, L15