Trust is an essential component of buyer-seller relationships, especially for online transactions. Appropriate feedback mechanisms help buyers build trust towards reputable sellers. Drawing from sociology and economics, we show that buyers pay a price premium to transact with reputable sellers, especially for expensive products. To empirically examine the relationship between feedback and price premiums, we collected data for 19 products from 702 completed online auctions from the auction site of ebay.com (www.ebay.com). Results showed a significant correlation between feedback and price premiums for all products. This correlation became increasingly significant for more expensive products. This paper contributes to a better understanding of the value of reputation and trust in EC.
Pavlou, Paul A. and Ba, Sulin, "Does Online Reputation Matter? An Empirical Investigation of Reputation and Trust in Online Auction Markets" (2000). AMCIS 2000 Proceedings. 77.