The Dynamics of Seller Reputation: Evidence from eBay

We construct a panel of eBay seller histories and examine the importance of eBay’s reputation mechanism. We find that, when a seller first receives negative feedback, his weekly sales rate drops from a positive 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 explains 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