Designing Quality Certificates: Insights from eBay / Xiang Hui, Ginger Zhe Jin, Meng Liu.

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Hui, Xiang

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w29674.Publication details: Cambridge, Mass. National Bureau of Economic Research 2022.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: Quality certification is a common tool to reduce asymmetric information and enhance trust in marketplaces. Should the certificate focus on seller inputs such as fast shipping, or include output measures such as consumer ratings? In theory, incorporating output measures makes the certificate more relevant for consumer experience, but doing so may discourage seller effort because outputs can be driven by random factors out of seller control. To understand this tradeoff, we study a major redesign of eBay's Top Rated Seller (eTRS) program in 2016, which removed most consumer reports from the eTRS criteria and added direct measures of seller inputs. This change generates immediate selection on certified sellers, and homogenizes the share of certified sellers across product categories of different criticalness in consumer ratings. Post the regime change, sellers improve in the input measures highlighted in the new certificate. These effects are more conspicuous in categories that had less critical consumer ratings, in part because the new algorithm automatically removes the potential negative bias for sellers in critical markets and a clearer threshold motivates sellers to just reach the threshold. The new regime also makes sales more concentrated towards large sellers, especially in the categories that face more critical consumers.

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Previous	nber w29671 Understanding Rural Households’ Time Use in a Developing Setting: Validating a Low-Cost Time Use Module /	nber w29672 Trade Policy Uncertainty /	nber w29673 Average Inflation Targeting: Time Inconsistency and Intentional Ambiguity /	nber w29674 Designing Quality Certificates: Insights from eBay /	nber w29675 Slowing Women's Labor Force Participation: The Role of Income Inequality /	nber w29676 Robots and Firm Investment /	nber w29677 The Second World War, Inequality and the Social Contract in Britain /	Next

January 2022.

Quality certification is a common tool to reduce asymmetric information and enhance trust in marketplaces. Should the certificate focus on seller inputs such as fast shipping, or include output measures such as consumer ratings? In theory, incorporating output measures makes the certificate more relevant for consumer experience, but doing so may discourage seller effort because outputs can be driven by random factors out of seller control. To understand this tradeoff, we study a major redesign of eBay's Top Rated Seller (eTRS) program in 2016, which removed most consumer reports from the eTRS criteria and added direct measures of seller inputs. This change generates immediate selection on certified sellers, and homogenizes the share of certified sellers across product categories of different criticalness in consumer ratings. Post the regime change, sellers improve in the input measures highlighted in the new certificate. These effects are more conspicuous in categories that had less critical consumer ratings, in part because the new algorithm automatically removes the potential negative bias for sellers in critical markets and a clearer threshold motivates sellers to just reach the threshold. The new regime also makes sales more concentrated towards large sellers, especially in the categories that face more critical consumers.