Financial Value of Reputation: Evidence from the eBay Auctions of Gmail Invitations

In a marketplace of repeated transactions with asymmetric information, theory predicts that sellers with a good reputation have a higher probability of sale and receive a higher transaction price. In this paper, I test this theory using more than 55,000 auctions of “Gmail invitations” on eBay, essentially a market of homogeneous goods with non-enforceable contracts. This is an ideal environment to test the theory because it allows a clean separation of the reputation e¤ects from other controlling factors. This study provides evidence in favor of the theoretical predictions because sellers who improve their reputation from the lowest to the next quintile experience a 6.2% higher probability of sale and a 6.1% hike in the implied buyer valuation after adjusting for truncation bias from failed auctions and explicitly controlling for seller skills. This study also shows that in addition to a dimension of reputation universal across di¤erent product markets, the product-speci…c dimension of reputation signi…cantly a¤ects the auction outcomes. JEL Classi…cation: D82, D44, L15, G14