and Jeremy Shapiro for truly outstanding research assistance. We also thank Damien De-

We construct a panel of eBay seller histories and examine the im-portance of eBay’s reputation mechanism. We find that, when a seller first receives negative feedback, his weekly sales rate drops from a pos-itive 7 % to a negative 7%; subsequent negative feedback ratings arrive 25 % more rapidly than the first one and don’t have nearly as much impact as the first one. We also find that a seller is more likely to exit the lower his reputation is; and that, just before exiting, sellers receive more negative feedback than their lifetime average. We consider a series of theoretical models and measure them against these empirical results. Regardless of which theoretical model best ex-plains the data, an important conclusion of our paper is that eBay’s reputation system gives way to noticeable strategic responses from both buyers and sellers