Reputation, Information Signals, and Willingness to Pay for Heterogeneous Goods in Online Auctions

Abstract

In online commerce, a buyer cannot directly examine the product and has to rely heavily on the reliability of the seller. In this setting, the reputation of the seller, together with any other information signals on the quality of the product, can play an important role in determining the buyer's willingness to pay for the good. However, while the impact of reputation on willingness to pay for homogeneous goods has been examined, its impact on heterogeneous goods is largely unknown. This paper examines the effects of the seller's reputation and information signals in online auctions, using U.S. silver Morgan dollar coins in almost uncirculated condition that are sold on eBay. The empirical results indicate that a seller's overall reputation has a positive and statistically significant impact on a buyer's willingness to pay in online auctions, an impact that is larger than for homogeneous goods. The results also indicate that negative comments about a seller have larger, and negative, impact on price.