The value of a good reputation online: an application to art auctions

Using a unique dataset of art auctions on eBay, we conduct an empirical analysis of the value of a seller’s online reputation. Several aspects distinguish our work from most existing research. We analyze a heterogeneous panel data consisting of a large number of observations over a large period of time, including significant variation in reputation across and within sellers. The panel structure of our dataset allows us to employ fixed effects techniques to control for observed and unobserved differences across auctions. Our results point to a highly significant, and sizable, impact of a negative reputation on the behavior of market participants and on market outcomes. Negative feedback is associated with a significant reduction in the number of bidders and a reduction in the probability of sale; negative feedback is also associated with a significant reduction in sale price. Consistent with previous research, the impact of additional positive feedback on market outcomes for the seasoned sellers in our sample is not statistically significant.