In markets where product quality is imperfectly observed or delivery is uncertain, seller reputations and product guarantees or warranties can impact equilibrium prices and quantities. Using data from a decentralized online market, this paper empirically investigates the substitutability of product guarantees for seller reputation. I find that a "guaranteed or your money back" promise from the market maker does not substitute for reputation, either in determining price or the probability of sale. The most likely causes of the policy's ineffectiveness are delays in buyer response to the guarantee and skepticism about reimbursement in the event of fraud. (JEL D82, L14, L15, L81,
"Can Warranties Substitute for Reputations?"
American Economic Journal: Microeconomics,
Asymmetric and Private Information
Transactional Relationships; Contracts and Reputation; Networks
Information and Product Quality; Standardization and Compatibility
Retail and Wholesale Trade; e-Commerce