(Thanks, Bill!)

A new paper by Paul Resnick presents evidence that a good reputation is worth about 8% more, as reflected by the price of identical goods, for sellers with a good reputation on eBay (the full paper is published in Experimental Economics):

EBay sellers with established reputations can expect about 8 percent more revenue than new sellers marketing the same goods, a new University of Michigan study shows.

“People with good reputations are rewarded and people with no reputations are not trusted as well as people who have established reputations,” said Paul Resnick, professor in the U-M School of Information and the study’s principal author.
The study is the first known randomized controlled look at the value of eBay reputations in the natural setting of actual eBay 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.

The study, “The Value of Reputation on eBay: A Controlled Experiment,” is available online in the journal Experimental Economics. It was co-written by Resnick, Richard Zeckhauser of Harvard University, graduate student Kate Lockwood and eBay seller John Swanson.

Surprisingly, the researchers found that one or two negative feedbacks did not hurt new sellers, but it remains unclear why buyers are willing to cut new sellers with negative feedback a little slack.

They offer several explanations, but Resnick said it’s likely that buyers are leery of new sellers no matter what the feedback.

“Either way, they aren’t trusted,” he said.