Collective Reputation and Quality in Online Platforms

Jason A. Winfree; Jill J. McCluskey

doi:10.1515/jafio-2018-0014

Article

Collective Reputation and Quality in Online Platforms

Jason A. Winfree and Jill J. McCluskey

Published/Copyright: March 16, 2019

Published by

Become an author with De Gruyter Brill

Submit Manuscript Author Information Explore this Subject

From the journal Journal of Agricultural & Food Industrial Organization Volume 18 Issue 2

Abstract

This article provides a conceptual framework to understand benefits and costs of private minimum quality standards, increasing seller reputation or warranties when there is a collective reputation for online platforms. Our framework uses a dual reputation model where consumers have a quality expectation based on the reputation of the platform and the reputation of the seller. We also analyze the benefits and costs of various types of fees associated with online platforms and find that the optimal fee structure depends on whether quality concerns or market power concerns are greater. Fees that are fixed, or only depend on quantity, increase market power, but do not hurt product quality. Therefore, they should be used if collective reputation is the main concern. Fees that depend on prices exacerbate bad quality incentives for firms, so they should only be considered if quality is not a concern for consumers. The optimal quality standard depends on the fee structure, as well as the level of compliance to that standard.

Keywords: collective reputation; online platforms

JEL Classification: Q18; D43

Acknowledgements:

The authors with to thank without implicating Liang Lu. Funding for this research project was provided, in part, by the Idaho Agricultural Experiment Station and the USDA-NIFA.

References

Akerlof, G. 1970. “The Market for “Lemons”: Quality Uncertainty and the Market Mechanism.” Quarterly Journal of Economics 84: 488–500.10.2307/1879431Search in Google Scholar

Chiang, S. C., and R. T. Masson. 1988. “Domestic Industrial Structure and Export Quality.” International Economic Review 29 (2): 261–70.10.2307/2526665Search in Google Scholar

Danzinger, P. N. 2018. “Online Grocery Sales to Reach $100 Billion in 2025; Amazon is Current and Future Leader.” https://www.forbes.com/sites/pamdanziger/2018/01/18/online-grocery-sales-to-reach-100-billion-in-2025-amazon-set-to-be-market-share-leader/#50ebebc62f33Search in Google Scholar

Donnenfeld, S., and W. Mayer. 1987. “The Quality of Export Products and Optimal Trade Policy.” International Economic Review 28 (1): 159–74.10.2307/2526865Search in Google Scholar

Elfenbein, D. W., R. Fisman, and B. McManus. 2015. “Market Structure, Reputation, and the Value of Quality Certification.” American Economic Journal: Microeconomics 7: 83–108.10.1257/mic.20130182Search in Google Scholar

Gardner, B. 2003. “US Food Quality Standards: Fix for Market Failure or Costly Anachronism?” American Journal of Agricultural Economics 85: 725–30.10.1111/1467-8276.00475Search in Google Scholar

Garella, P. G., and E. Petrakis. 2008. “Minimum Quality Standards and Consumers’ Information.” Economic Theory 36: 283–302.10.1007/s00199-007-0269-9Search in Google Scholar

Houser, D., and J. Wooders. 2006. “Reputation in Auctions: Theory, and Evidence from eBay.” Journal of Economics & Management Strategy 15: 353–69.10.1111/j.1530-9134.2006.00103.xSearch in Google Scholar

Hunt, K. 2015. “Why Chinese Food Safety is so Bad.” https://www.cnn.com/2015/01/16/world/china-food-safety/index.htmlSearch in Google Scholar

Jaffe, S., P. Coles, S. Levitt, and I. Popov. 2017. “Quality Externalities on Platforms: The Case of Airbnb.” https://soniajaffe.com/articles/Jaffe_JMP_Quality_Externalities.pdfSearch in Google Scholar

Kestenbaum, R. 2017. “Why Online Grocers are so Unsuccessful and what Amazon is Doing About it.” https://www.forbes.com/sites/richardkestenbaum/2017/01/16/why-online-grocers-are-so-unsuccessful-and-what-amazon-is-doing-about-it/#26327cc57f56Search in Google Scholar

Leland, H. E. 1979. “Quacks, Lemons, and Licensing: A Theory of Minimum Quality Standards.” Journal of Political Economy 87: 1328–46.10.1086/260838Search in Google Scholar

Levy, A. 2016. “Amazon’s Chinese Couterfeit Problem is Getting Worse.” https://www.cnbc.com/2016/07/08/amazons-chinese-counterfeit-problem-is-getting-worse.htmlSearch in Google Scholar

Livingston, J. A. 2005. “How Valuable is a Good Reputation? A Sample Selection Model of Internet Auctions.” The Review of Economics and Statistics 87: 453–65.10.1162/0034653054638391Search in Google Scholar

McQuade, T., S. W. Salant, and J. Winfree. 2016. “Markets with Untraceable Goods of Unknown Quality: Beyond the Small-Country Case.” Journal of International Economics 100: 112–19.10.1016/j.jinteco.2016.02.004Search in Google Scholar

Melnik, M. I., and J. Alm. 2002. “Does a Seller’s Ecommerce Reputation Matter? Evidence from eBay Auctions.” The Journal of Industrial Economics 50: 337–49.10.1111/1467-6451.00180Search in Google Scholar

Millward, S. 2017. “Alibaba to use Blockchain to Fight China’s Fake Food.” https://www.techinasia.com/alibaba-fake-food-detection-blockchainSearch in Google Scholar

Nelson, P. 1970. “Information and Consumer Behavior.” Journal of Political Economy 78: 311–29.10.1086/259630Search in Google Scholar

Nosko, C., and S. Tadelis. 2015. “The Limits of Reputation in Platform Markets: An Empirical Analysis and Field Experiment.”10.3386/w20830Search in Google Scholar

Pouliot, S., and D. A. Sumner. 2008. “Traceability, Liability, and Incentives for Food Safety and Quality.” American Journal of Agricultural Economics 90: 15–27.10.1111/j.1467-8276.2007.01061.xSearch in Google Scholar

Resnick, P., R. Zeckhauser, J. Swanson, and K. Lockwood. 2006. “The Value of Reputation on eBay: A Controlled Experiment.” Experimental Economics 9: 79–101.10.1007/s10683-006-4309-2Search in Google Scholar

Ronnen, U. 1991. “Minimum Quality Standards, Fixed Costs, and Competition.” The RAND Journal of Economics 490–504.10.2307/2600984Search in Google Scholar

Saitone, T. L., and R. J. Sexton. 2010. “Impacts of Minimum Quality Standards Imposed Through Marketing Orders or Related Producer Organizations.” American Journal of Agricultural Economics 92: 164–80.10.1093/ajae/aap005Search in Google Scholar

Shapiro, C. 1982. “Consumer Information, Product Quality, and Seller Reputation.” The Bell Journal of Economics 20–35.10.2307/3003427Search in Google Scholar

Souza-Monteiro, D. M., and J. A. Caswell. 2010. “The Economics of Voluntary Traceability in Multi-ingredient Food Chains.” Agribusiness 26: 122–42.10.1002/agr.20233Search in Google Scholar

Wang, S., and J. Griffiths. 2017. “China’s Fake Food Problem: Soy Sauce and Spice Mixes.”Search in Google Scholar

Winfree, J. 2016. “Partial Adherence to Voluntary Quality Standards for Experience Goods.” Journal of Agricultural & Food Industrial Organization 14: 81–89.10.1515/jafio-2014-0013Search in Google Scholar

Winfree, J. A., and J. J. McCluskey. 2005. “Collective Reputation and Quality.” American Journal of Agricultural Economics 87: 206–213.10.1111/j.0002-9092.2005.00712.xSearch in Google Scholar

Published Online: 2019-03-16

You are currently not able to access this content.

Articles in the same Issue

https://doi.org/10.1515/jafio-2018-0014

Keywords for this article

collective reputation; online platforms