Buying Reputation as a Signal of Quality: Evidence from an Online Marketplace

Title: Buying Reputation as a Signal of Quality: Evidence from an Online Marketplace

Speaker：LI Lingfang (Fudan University, Associate Professor)

Host：DAI Yun (Lingnan College, Sun Yat-sen University, Assistant Professor)

Date and Time：November 9, 2018 (14:30-16:00)

Location: Wang Daohan Room, Lingnan Hall

Language: Chinese + English

Abstract:

Seller reputation, generated by buyers leaving feedback, is critical to foster trust in online market- places. We argue that signaling theory predicts that only high quality sellers would reward buyers for truthful feedback, and we explore this scope for signaling using the “reward-for-feedback” mechanism on Alibaba Group’s Taobao marketplace. We find that items with rewards generate sales that are nearly 30% higher and are sold by higher quality sellers, consistent with a signaling equilibrium. 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.