Academic journal article Journal of Electronic Commerce Research

In-Depth Analysis of the Seller Reputation and Price Premium Relationship: A Comparison between Ebay Us and Taobao China

Academic journal article Journal of Electronic Commerce Research

In-Depth Analysis of the Seller Reputation and Price Premium Relationship: A Comparison between Ebay Us and Taobao China

Article excerpt

ABSTRACT

Seller reputation is recognized as an essential determinant in online C2C marketplaces, but its influence on price premium remains unknown. The majority of existing studies indicate that seller reputation is positively correlated with sales price (price premium) on eBay US, but not on Taobao China. Conversely, the strong correlation between seller reputation and sales volume found on Taobao (volume effect) seldom occurs on eBay US. Seller reputation thus seems having a positive impact on sales price on eBay US but a positive impact on sales volume on Taobao. To explain this interesting difference, we conducted an in-depth analysis using data retrieved from eBay US and Taobao China, grounded in the economic theory of market structure. The findings suggest that market structure, and specifically the number of sellers, moderates the relationship between seller reputation and sales performance. In a thin market, seller reputation is positively correlated with sales price, whereas in a thick market, the impact of seller reputation is reflected in sales volume.

Keywords: Online Markets, Seller Reputation, Market Structure, Sales Performance

1. Introduction

In the last decade, the explosive growth of Internet-based commerce has given rise to a large number of online shopping websites. Unlike the traditional offline market, in which seller and buyer usually conduct transactions face to face, an online buyer can execute a transaction without actually meeting the seller. This simple, convenient online process can lead to uncertain outcomes, which increases consumer distrust. To reduce or eliminate such distrust, seller reputation systems in the form of reputation scores, feedback ratings, and positive feedback rate et al, have been developed in many online shopping marketplaces. Research has subsequently attempted to examine the impact of seller reputation on sales performance both theoretically and empirically.

Previous studies that attempt to understand the impact of seller reputation on sales performance are mainly based on transaction records from www.eBay.com [Livingston 2010]. As the global leader in the online C2C auction market, eBay has a well-developed seller reputation system, and millions of items are traded on the site daily. In 2011, the total value of goods sold on eBay was $68.6 billion, more than $2,100 every second. With the increasing popularity of the online market in China, the website www.Taobao.com has become a prominent online C2C platform and was recently ranked as the number one online C2C auction marketplace in China. By the end of 2011, Taobao had 500 million registered participants and 800 million products for sale. Taobao has 60 million visitors per day and sells 48,000 products per minute. According to the three-month Alexa traffic rankings,1 Taobao.com is ranked 12th and ebay.com is ranked 20th worldwide. The blossoming of the online market in China has stimulated much interest among marketers. However, there is still limited research that attempts to understand the unique behavior of the online C2C market in China.

We noticed that many studies that use data from eBay US reveal a strong correlation between seller reputation and sales price. For instance, in the studies of Ba and Pavlou [2002] and Pate [2006], the seller reputation score is shown to have a positive influence on price, and this is regarded as a price premium due to a high reputation. However, studies on the same topic with the online C2C market data like Taobao in China show different results [Li et al. 2007; Liu et al. 2009]. The majority of studies using Taobao data suggest a strong correlation between seller reputation and sales volume, but not sales price [Li et al. 2007; Ye et al. 2009]. This raises the question of whether a price premium always occurs in the US market and a volume effect occurs in the Chinese market. The factors underlying this discrepancy between the US and Chinese markets have yet to be elucidated. …

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