Professional Documents
Culture Documents
Master 2 e-Business
«On peut tromper une fois 1000 personnes, mais on ne peut pas
tromper 1000 fois une personne.»
Emile Gravier, La Cité de la peur (1994)
Introduction
3
Review of litterature
3
"Does a seller's e-commerce Reputation Matter?" Melnik, M.I and J. Alm
3
"The role of Institutions in the revival of trade: the law merchant, Private
judges, and the champagne fairs" Milgrom, North and Weingast
3
Conclusion 11
This article explain in what extent the feedback mechanisms is mitigate the
moral hazard problems associated with auction markets on internet.
This problem come from the fact that seller could not send the product to his
buyer when he receive the money if he is not honest, so their is a problem of
trust for the buyer. It's a Prisoner's dilemma, a feedback mechanisms may
solve it.
First we analyze few references of the authors, then we present the game and
his result, then we try to analyze this study and make few criticism.
Review of litterature
"Does a seller's e-commerce Reputation Matter?" Melnik, M.I and J. Alm
Working paper, Georgia
They examine the willingness to pay for a mint condition US $5 Gold coin on e-
Bay in 1999. They wanted to know if the seller's reputation have an impact on
the price of the product. They finally managed after their studies to the
conclusion that a good reputation have positive impact on the product price.
It's mean that if you have a good reputation you can set a price higher.
"The role of Institutions in the revival of trade: the law merchant, Private judges, and
the champagne fairs" Milgrom, North and Weingast
Economics and politics
In this paper, the authors works on the law merchant. This law was applied by
gild of merchant in medieval time. This law solves the classic prisoner's
Addressed to Professor Masclet and Professor Denant-Boèmont 3
dilemma. In this dilemma, each merchant have incentive to cheat the other if
there is only one transaction. In the case of repeated interaction, it would be
honest dealing if they adopt the "tit-for-tat" strategy: "if you cheat me i will
punish you". The "tit-for-tat" becomes "tit-for-tat" adjusted: it's mean that if
you cheat a merchant, you will be punished by the next merchant you deal
with. It is obvious, that kind of mechanism works only on community where
everybody knows everybody. This mechanism works well because it is
profitable to cheat the cheater and if you not punish the cheater, you will be
punished.
" Experimental games for the design of reputation management system" C.Keser
Dr Keser realized this experiment in order to quantify the increase in trust
produced by two versions of reputation management systems. He used the
long run reputation management system ( seller history of notation) and a
short run reputation system (buyers see only the last notation). The doctor
used experimental economics which involved 320 students. Keser underline
thank to his experiments that a reputation mechanisms increase the number of
transaction but he also remark that the long run reputation is more efficient
than the short run. The trust and truswothiness are both increased by more
than 50% while they are only rose by more than 30% in the short run
mechanism.
This study explain how and why people collaborate on a market where the
relative standing is important. It explain that the strategic situation can be
deduce from two of the most elementary games: ultimatum and dictator.
Taken together, these games have a flash point where self-interest is
subjugated to concern for relative standing. But what is this concern for
relative standing? Is it altruism, equity, or reciprocity? And there is a second
deeper question: Why should people care about relative standing? This study
speculate that the answer to the first question is ‘reciprocity’ and that the
answer to the second question has to do with biology. Several experimental
studies cast doubt on the proposition that people care about distribution in a
way that we would expect an altruist to care. The same evidence suggests that
people are willing to sacrifice little to defend equity as a principle. The authors
suppose that evolution has molded human for successful group living. People
may then have a propensity to contribute to the group, because a successful
group contributes to their own individual biological success. In our case, it
means that sellers are fair-play.
The authors realized this study in order to answer to the question : why buyers
trust unknown sellers in the vast electronic garage sale ? They used data from
Addressed to Professor Masclet and Professor Denant-Boèmont 4
e-Bay on 1999 which represent million of items. Finally they underlined two
facts. The first one was there is a hight rate of providing evaluate, that may
explain why buyers trust sellers who have good reputation.The other fact they
observed was the extreme rarely of neutral or negative evaluation. The last
one was named the High Courtesy Equilibrium which involved that when
buyers rate, they rate positively or they don't evaluate at all. More over this
phenomenon is strengthen on platform like e-Bay which allow sellers to rate
buyers. That means a seller will rate positively the buyer in order to be rated in
the same way.
This article suggest that seller's reputation, reflected through his feedback
profile, plays a very important role in buyer trust building.
Moreover this study suggest that people who have a better reputation could
sell their goods to a higher price.
This article analyze how the institutional environment drives the evolution of
trust and trustworthiness through the evolution of moral preferences. I explain
that modern online communities that are cheaply connected via electronic
communication channels may imitate small group detection technologies
Addressed to Professor Masclet and Professor Denant-Boèmont 5
through sophisticated computerized feedback systems and thus partly crowd
out legal institutions.
This article examine the effect of reputation on price in a data set drawn from
the online auction site eBay. Our main empirical result is that seller, but not
price.
Trust decrease from 80% to 40% in the ten first period and become very
variable after.
For all those variable there is a end game effect, player know there is a high
chance of deviation because they wouldn't have to trade with this players after
the end of the game.
We noticed also with the table that the last ship is very important, in fact when
the seller ship the last order it has a significant impact on the buyers trust ( O,
212 to 0,06 for SHIPLASTreputation against TOTALSHIPreputation).
In the and
reputation same way as
strangers, weindicated
can also notice
by the what
treatment we named
dummy a "loss
PARTNERS, confident
but controlling foreffect"
with the CBHN. It's mean that when you were disappointed in the past by one,
end-game
two or effects the trust
even more shownfrom
cheating by partners
sellers, isyou
remarkably
have somestable over time:
difficult The sellers
to trust
after.
ROUNDpartners coefficient is small and not significant. ROUNDreputation is also small, but
14
20%
Strangers Reputation Partners
0%
-10%
untrustworthy
trustworthy
-20%
-30%
-40%
-50%
* The base rate (the zero line) is the average buy over all encounters for each
treatment separately (37.08 percent in strangers, 55.56 percent in reputation
and 83.22 percent in partners).
This kind of conditional buying is rational since the seller’s history has predictive power
In order to measure the improvement in trust, the author compared Stranger
for his future
Market andperformance.
ReputationTable 3 presents
market. Theya random effect probit
remarked that for
thesellers. We can see that
last feedback is very
important
shipping the onlast the
time reputation market
both a reputation and than
partneron the stranger
market market.
seller received a buy Buyers
order is atrust
with a probability of 33 % if seller no ship the last time and rose to 65% if the
significant
seller shippredictor
the last of whether
time. theSo seller will do so this
the reputation time. (The
mechanism may coefficient
improve for the
number of transaction.
LASTSHIPstrangers is significant as well but with a negative sign.) Further, a last decision to
ship is more highly predictive of shipping this time in partners than in reputation markets (two-
They
tailed pcompared also
= 0.0121, Wald the Partner Market and the Reputation Market in order to
test).
see what is good and what is wrong. Comparing to the partner market, the
feedback do not work perfectly on the reputation market. They explained that
by the fact that when you send a feedback on the reputation market it profit to
everybody. When you send a signal on a partner market, it will benefit only to
the one who sent it. In fact we can16consider that the signal is a public good
and people , so people have to deal with free-riding problem. We can say that
feedback in reputation market is costly than in the partner one. An other thing
which can explain the less efficiency of reputation market is the fact that seller
history is diluted by the own buyers history.
Concerning the pay-off, there is a positive correlation between the trust and
the payoffs. That mean the payoffs are higher in reputation market than in the
stranger market.
An other criticism could be that this study don't care about the price of the
exchanged product, a buyer would spend more time to inspect his seller
feedback history if he want to buy to him a 1000$ good whereas for a 10$
good the opportunity cost is to high.
If a product is very rare, if only one seller sell it and if a buyer really want it he
may risk his money30
even if the seller haven't got a good feedback history.
The study venture the hypothesis that post a feedback is not beneficial to the
buyer. It neglect the social aspect of the Internet. It's socially enhancive for
people to produce information, it's one of the major motor of web 2.0.
Conclusion
After this study the authors take away two main fact. They conclude first that a
market works better with a reputation system. This observation is strengthen
by the strong end game effect which involved that their some strategies played
during the game. The second point which they keep in mind is the public
characteristic of the feedback that explain why the partner market works
better than the reputation one.
Authors also noticed that there may be newbies problems due to the non-cost
of change your identity on internet. There is also the emotional side with
revenge effect and people generally stopped their choice when they are
satisfied and not when they reach optimum choice.