RETURNS ON REPUTATION IN RETAIL E-COMMERCE

The industrial organization literature suggests that firms invest in reputation to earn price premiums. Data from online auctions has revealed that sellers are able to earn returns on their reputations. This paper examines online retail markets from the same perspective. We study, data from the markets of homogeneous consumer products listed in Pricegrabber.com in May 2008 is analyzed with a hierarchical regression model using OLS and quantile regression. Contrary to online auctions, the results indicate that in general, sellers do not earn returns on reputation in retail e-commerce. However, the evidence suggests that very large sellers and small sellers may benefit from their reputations in competition. Moreover, we discover that while an increase in the number of sellers lowers prices overall, the control groups are not affected by this but an increase in the number of small sellers lowers prices universally.