In this paper, we investigate a crucial aspect of the reputation mechanism design in electronic markets – the ability of buyers and sellers to revoke or mutually withdraw negative feedback and ratings. Based on recent changes in eBay feedback mechanism, we find that the two-way reputation system enables certain sellers to behave opportunistically by revoking negative feedbacks they receive. This makes the reputation system less effective in discerning the quality of sellers. We also find that changes in the reputation system have a significant influence on these sellers’ behavior. After revoking is not possible on eBay, sellers put more efforts in the transactions. Our findings support the moral hazard assumption regarding seller’s strategic behavior. We also discuss the implications of the above findings to reputation mechanism design and practice.
Ye, Shun; Gao, Guodong (Gordon); and Viswanathan, Siva, "The Good, The Bad, or the Ugly? An Empirical Investigation of Revoking Behavior on eBay" (2009). ICIS 2009 Proceedings. 144.