Reputation in Auctions: Theory, and Evidence from eBay

We model auctions in which bidders and the seller have observable and heterogenous reputations for defaulting on an auction contract. Employing a simple procedure suggested by our theoretical results, we 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 bidder, reputation has an economically and statistically significant effect on price.