#30 1996 · eBay · E-commerce
eBay let strangers grade each other and the market policed itself
the problem
Wiring money to an anonymous seller
background
Pierre Omidyar's AuctionWeb, launched in September 1995, matched anonymous strangers to trade sight-unseen over the mail — the exact setup economist George Akerlof had described decades earlier as a "market for lemons," where buyers who can't verify quality assume the worst and honest sellers get driven out. Online, none of the usual signals of a trustworthy trader — a shopfront, years in the same location, a reputation in town — existed at all.
The conventional fixes were institutional: eBay itself could vet sellers, insure transactions, or require identity verification before anyone could list an item — the way a bank vets a borrower. Omidyar instead gave that job to the users themselves. When the site was about six months old, he launched the Feedback Forum, letting any buyer or seller leave a public, cumulative rating on the other party's trading identity.
the move
The Feedback Forum: cumulative public ratings attached to every trading identity.
the payoff
Made million-strong stranger markets self-policing; the template for every rating system since.
what came after
A later randomized field experiment measured the mechanism directly: a single high-reputation eBay dealer sold matched pairs of postcard lots under his established identity and under freshly created ones, and buyers paid 8.1% more for the identical item from the established identity — reputation alone, isolated from everything else. eBay's public-rating template became the reference model for every stranger-to-stranger platform that followed — Amazon reviews, Uber and Airbnb's two-way ratings, Etsy, Upwork — to the point that the mechanism itself is now unremarkable, even though solving the lemons problem for a mass anonymous market was not, in 1996.
filed under
references
- [1]eBayWikipedia, 2024en.wikipedia.org
- [2]The Value of Reputation on eBay: A Controlled ExperimentResnick, Zeckhauser, Swanson & Lockwood (University of Michigan working paper), 2006presnick.people.si.umich.edu