Seminar Vol. 110

Title: Buying Reputation as a Signal of Quality: Evidence from an Online Marketplace

Speaker: Lingfang Li, Fudan University

Time: November 8th, 2018 13:30–15:00

Venue: Conference Room 106B, Zhonghui Building

About the speaker:

Lingfang Li is an Associate Professor of Economics at School of Management, Fudan University. She received PhD in Economics at University of California, Irvine, and worked at University of Louisville and Shanghai University of Finance and Economics before joining Fudan University. Her research interests include information economics, industrial organization, applied game theory, and behavioral economics. Her papers have been published in Management Science, Journal of Economics and Management Strategy, Decision Support Systems, Decision Science, etc. Lingfang Li currently serves as an associate editor for Decision Support Systems and has been a Huoshui scholar for Alibaba group for several years. She has received Pujiang Scholar, Shuguang Scholar, as well as Excellent Young Scholarship of Chinese National Science Foundation awards.

Abstract:

Seller reputation, generated by buyers leaving feedback, is critical to foster trust in online market- places. We argue that signaling theory predicts that only high quality sellers would reward buyers for truthful feedback, and we explore this scope for signaling using the “reward-for-feedback” mechanism on Alibaba Group’s Taobao marketplace. We find that items with rewards generate sales that are nearly 30% higher and are sold by higher quality sellers, consistent with a signaling equilibrium. The market design implication is that marketplaces can benefit from allowing sellers to use rewards to build reputations and signal their high quality in the process.