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Updated 10:00 AM July 10, 2006
 

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Established eBay sellers get higher prices for good reputations

An established eBay vendor will get higher sale prices than a new seller if both auction off the same item, a study shows. Vendors with established reputations can expect about 8.1 percent more revenue than new sellers marketing the same goods.

The U-M study was the first randomized controlled look at the value of eBay reputations in the natural setting of actual auctions. The findings showed that eBay's feedback system—the cornerstone of the online auction site—works as it should by rewarding sellers who have more positive feedback. A paper, "The Value of Reputation on eBay: A Controlled Experiment," has been published on-line in the journal Experimental Economics.

"People with good reputations are rewarded, and people with no reputations are not trusted as well as people who have established reputations," says Paul Resnick, professor in the School of Information and the study's principal author. Professor Richard Zeckhauser of Harvard University, graduate student Kate Lockwood, and eBay seller John Swanson co-authored the paper.

Surprisingly, researchers found that one or two negative comments didn't hurt new sellers, but it remains unclear why buyers are willing to cut new sellers with negative feedback a little slack.

Scientists offer several explanations in the paper, but Resnick says it's likely buyers simply distrust new sellers no matter what the feedback. "Either way they aren't trusted," he says.

Resnick adds that when researchers conducted the study in 2003 eBay didn't show the percentage of negative feedback, as it does now, so it wasn't as obvious when a relatively new seller had bad marks.

The group enlisted the help of an established eBay vendor to sell matched pairs of lots of vintage postage cards. The seller set up several new accounts and listed the matching items on all the accounts on alternate weeks. The researchers eventually added negative feedback to some of the new accounts.

There still is much to be learned about the value of feedback on eBay and other online auction sites. Resnick's group currently is trying to estimate how frequently buyers and sellers reciprocate the positive feedback they get from one another versus independently rating the transactions. In this way, researchers will understand what the feedback really means and how informative it is overall, Resnick says.

In earlier work the group discovered that negative feedback on eBay comes in clumps, and is partly a result of "stoning," in which buyers are more apt to throw stones once they see one negative feedback. The results did not show that sellers were changing their behavior after receiving a negative feedback, Resnick says.

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