What Is the Best Way To Protect Consumers Online?

Maryam Saeedi, Tepper School Assistant Professor of Economics, speaks about her research on how to protect online shoppers from disreputable vendors.

Video Transcript

The online marketplace is a growing industry. It's actually the highest growing industry in the U.S. at the moment. And my research is mainly about the value of reputation, and how different the reputation mechanism affects different parts of the market.

When you buy something online, you can't actually test the product; you can't feel it; you can't make sure that it's all good and works as the seller is saying. So, one thing is to have a reputation mechanism, which would rely on the past performance of sellers, and the other is trying to add regulations.

So, what I've been studying in this paper is what happened to eBay when they added this guarantee mechanism. If you buy something on eBay and the item is not as described, you can get your money back, including shipping, if you have to return it, yet you can — actually, the seller has to pay the return shipping fee as well.

Some of the bad sellers on the marketplace had to quit. If you were a seller who didn't have very good reputation scores, you didn't have very good quality, beforehand you could sort of survive in the marketplace, but now that you have to get a lot of returns and pay the shipping fee, you cannot survive on eBay anymore. Also, on the other hand, for the sellers who stayed on the market, we see that they have improved their quality, because now, if you're exaggerating the quality of the item, it can be very costly for you.

Adding this additional guarantee mechanism improved the marketplace and, as a result, the number of claims didn't actually go up as much. So that's, I think, the benefits outweigh the cost.