On the efficacy of imperfect public-monitoring of seller reputation in e-commerce

•The main objective is the empirical study of e-transactions for the formation of buyers’ beliefs.•Theoretical analysis of reputation in on line transactions is presented in terms of game theory.•A game with imperfect public monitoring and adverse selection is detailed.•Empirical evidence on the determinants of perceived buyers’ reputation of virtual shops is shown.•Web buyers consider both advertising and social signals to learn seller’s characteristics.

Reputation is crucial in promoting exchanges in online markets, since it may overcome information inefficiency through successful signals of sellers’ quality to less informed customers. To explore this issue, I study web sellers’ reliability in business-to-consumer online transactions with reference to reputation games. Customers can gather information in online marketplaces like e-Bay through public feedback systems. In contrast, without a centralized reputation system, it is not clear how potential buyers form their beliefs. For the latter case, I provide empirical evidence on perceived reliability and its determinants for some virtual shops operating worldwide in the clothing retail sector.