The Good, the Bad, or the Ugly? An Empirical Investigation of Revoking Behavior on Ebay

Abstract

This study investigates a crucial aspect of the reputation mechanism design in electronic markets – the ability of buyers and sellers to revoke or mutually withdraw negative feedback and ratings. Based on an analysis of recent changes in eBay’s feedback mechanism design, we find that the two-way reputation system enables certain sellers to behave opportunistically by revoking negative feedbacks they receive. This makes the reputation system less effective in discerning the quality of sellers. We also find that changes in the reputation system have a significant influence on these sellers’ behaviors. After eBay’s ban on revoking, sellers exert more effort to improve the quality of their transactions. Our findings support the moral hazard assumption regarding seller’s strategic behavior. We discuss the implications of the above findings for reputation mechanism design and practice.

Keywords: mechanism design, reputation mechanisms, revoking, online auctions, moral hazard