Losing to Win: Reputation Management of Online Sellers

Reputation is generally considered an asset, especially in e-commerce markets. Any reputation system, however, elicits strategic responses from the sellers. Using panel data on a large random sample of online sellers from China’s largest e-commerce platform, Taobao.com, we study how reputation affects revenue, prices, transaction volume, and survival likelihood as well as how sellers manage their reputation. We find that seller reputation has a substantial positive impact on established sellers, but new sellers fail to reap such benefits. Pursuing the long-run returns to reputation, new sellers actively manage their reputation by engaging in costly activities such as sales and switching product categories. In this "losing to win" process, new sellers may have spent too much resource to survive to next stage. Our results provide empirical support for the theory of career concern and reputation dynamics.