Below is my conversation with Jadyn Kerns-Funk about her fascinating thesis, which focuses on incentives to collude in online markets. Enjoy!
What inspired your interest in studying online markets?
Over the summer last year my dad asked me to go through his comics from the 60s and 70s and sell them online (for a percent cut of the profit of course). I turned to eBay first, and was forced to then determine the best way to portray our version of the comic as superior to others— primarily through trust formation and reputation. This was difficult as a new seller, where there were no previous transactions to provide signals to buyers. The idea of using rating systems and previous transactions to dictate buyer behavior in a market with asymmetric information was interesting to me and I wanted to explore how effective these systems are in indicating the quality of an item.
So what specifically does your thesis explore?
It is about consumer to consumer matching platforms. It focuses specifically on eBay and how effective its feedback systems are as a signal of quality.
By feedback systems I assume you mean reviews we all see of sellers when we shop online?
Yes, 5-star rating systems specifically, and how the number of reviews influences behavior. It is an incomplete information game, where only one party knows the quality of the good. The idea is that I looked over how these feedback systems changed over time, and how they were adapted to decrease vulnerability to exploitations.
So what were your main findings?
There is incentive for a seller to collude with buyers by sending out little gifts in exchange for good reviews. This is because the benefits of getting a good review outweigh the costs of sending out the gift.
Was there anything that surprised you?
It was somewhat surprising how evident eBay’s own motives (maximizing their own profits through an increase in transactions) were apparent in their policies. They balanced on a thin line between making the rating systems reputable, but also wanting inflated scores to increase the number of transactions that occurred.
What policy changes would you recommend given your findings?
Sellers should not be able to review buyers at all. Right now, sellers can only leave positive reviews of buyers. eBay has ulterior motives and, like I said, that is reflected in their policies. They get a cut of sales, so they are incentivized to promote positive transactions while maintaining some level of integrity in the ratings.
Lastly, do you have any advice for people thinking about their upcoming theses?
My only advice would be to utilize all of your resources (professors, classmates, etc)— your professors want to help you and would surely help you find a starting place for a topic that interests you.
Awesome – thanks, Jadyn!