Designing Quality Certificates: Insights from eBay

Abstract

Quality certification is a common tool to enhance trust in marketplaces. Should the certification be based on consumer reports, such as ratings, or administrative data on seller behavior, such as the number of seller-initiated cancellations? In theory, incorporating consumer reports makes the quality certificate more relevant for consumer experience but may discourage seller effort, because consumer reports can be driven by factors not entirely within sellers’ control. Alternatively, using administrative data makes the certification more controllable by sellers, but these data track only a subset of seller behavior and may not be fully aligned with consumer experience. To answer the preceding question, the authors study a major redesign of eBay's quality certification that removed most consumer reports from its criteria and added administrative data. This change motivates seller effort in dimensions highlighted by the new criteria, as well as enabling sellers to more precisely target their effort at the threshold. Buyers place a higher value on the quality certificate and are more likely to purchase again on the platform in markets where administrative data are more correlated with consumer reports. Last, the proportion of certified sellers becomes more homogenized across markets, and sales seem to become more concentrated toward large sellers.