It is my view that reputation is the foundation upon which all economic activity is based. When two parties are in negotiations, they are taking into account each other's reputation and using it to their advantage. If their reputation is good, they are using it to bolster stability and confidence in completion of the deal. If their reputation is bad, it can justify a lower price or another mitigating factor.
I have personal experience in cultivating a reputation and then maintaining it. I am the sole proprietor of an eBay business, and when I first started my vendor account with them, I had no customer feedback whatsoever and people were hesitant to buy my items. This only reinforces my earlier point that people use reputation as the basis for their economic activity. When I didn't have a reputation on eBay yet (no customer feedback), my trading volume was very low, similar to those vendors that had bad customer feedback. After providing good service for a few months, I was able to accumulate enough good customer feedback so as to assure future buyers that I was a legitimate vendor and was not out to cheat anyone.
In a perfectly competitive market, both parties have complete information. However, in the real world, no one has complete information and a lot of the information is inferred from the reputations of their respective parties.
Considering the length of this post, you might ask what is your reputation in my class?
ReplyDeleteI don't use eBay so don't know the answer to the following. If one customer has a good experience with you how does the knowledge of that transfer to potential customers who are out there? The entire process of "likes" and "reviews" is fraught with the possibility of moral hazard. Who is actually writing these things? How can a reader know to trust that?
There is a concept called information literacy, which is about determining the trustworthiness of a source. In general, we should be skeptical. I know many people who like eBay and use it frequently. But I'd rather pay a few more bucks and avoid the headache of not being sure what I'm getting till it's too late.