Do different reputation systems provide consistent signals of seller quality: a canonical correlation investigation of Chinese C2C marketplaces

Abstract

In recent years, consumer-to-consumer (C2C) marketplaces such as eBay and Taobao have adopted a component rating system, and run it simultaneously with but independent of a binary rating system. This paper investigates the extent to which binary rating and component rating systems are able to provide consistent signals of sellers’ quality, focusing on the reputation system design under the Chinese context. Using field data from Taobao, we performed canonical correlation analyses and found that the reputation signals of the two systems are generally correlated. As expected, negative and neutral ratings accurately reveal buyer dissatisfaction. Our results, however, show that positive ratings exhibit negative correlations with the three component ratings (i.e., item-as-described, customer service, and on-time delivery), suggesting that large numbers of positive ratings on Taobao may encourage trust in the platform but do not help to choose credible sellers. Our results elucidate the role of cultural difference in explaining the negative relationship in China and provide important implications for the design of reputation systems.