NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Limits of Reputation in Platform Markets: An Empirical Analysis and Field Experiment

Chris Nosko, Steven Tadelis

NBER Working Paper No. 20830
Issued in January 2015
NBER Program(s):Industrial Organization, Productivity, Innovation, and Entrepreneurship

We argue that reputation mechanisms used by platform markets suffer from two problems. First, buyers may draw conclusions about the quality of the platform from single transactions, causing a reputational externality across sellers. Second, for a variety of reasons we discuss, reputations will be biased. We document these problems using eBay data and claim that platforms can benefit from identifying and promoting higher quality sellers. We create an unobservable measure of seller quality and demonstrate the benefits of our approach through a controlled experiment that prioritizes better quality sellers. We highlight the importance of reputational externalities and chart an agenda that aims to create more realistic models of platform markets.

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Document Object Identifier (DOI): 10.3386/w20830

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