Blind Trust Online : Experimental Evidence from Baseball Cards

Before reaping transaction cost savings from the Internet, online sellers must credibly communicate the quality of their goods or their reliability of delivery. We use baseball cards as an example to address (1) whether consumers fully understand the risk of online trading, (2) the extent to which consumers employ seller reputation and professional grading to alleviate the risk they are exposed to, and (3) the impact of online trading on the retail market and supporting industries. An experiment is carried out to obtain actual baseball cards from both online and retail markets whose quality is then professionally graded and compared to the prices paid by online buyers for goods with similar claims. Our findings indicate that some uninformed online buyers are misled by non-credible claims of quality; they pay higher prices but do not receive better quality and in fact are defrauded more often. Although a combination of professional grading and reputation mechanisms appear to have the potential to solve the problem, they have only had limited success so far. Data on structural changes in the baseball card industry suggest the problems stemming from buyer misconception may have far-reaching consequences, extending beyond the immediate losses of defrauded consumers to influencing producer and supply decisions. Our findings also suggest that empirical studies using online price data should be careful of what assumptions they are making of online users and what behaviors of buyers and sellers are likely to drive the price data