Abstract

We test specific implications of existing models of reputation using eBay data on auction prices, sale rates, and seller reputation. Our basic model combines elements from Diamond’s (1989) and Levin and Smith’s (1994) models and features both adverse selection and moral hazard. The empirical evidence provides strong support for two implications of this basic model: that once a seller receives the first negative buyer feedback, both the sales rate drops and the frequency of negative feedback increases. We consider a variety of alternative theories of seller Electronic commerce presents the theoretical and the empirical economist with a number of interesting research questions. Traditional markets rely significantly on the trust created by repeated interaction and personal relationships. Electronic markets, by contrast, tend to be rather more anonymous. Can the

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