Mitigating the Cold-start Problem in Reputation Systems: Evidence from a Field Experiment

Reputation systems are typically used in markets with asymmetric information, but they can cause the cold-start problem for young sellers who lack historical sales. Exploiting a field experiment on eBay, we show that in the presence of a long-run quality signal, introducing a less history-dependent quality signal mitigates the cold-start problem: it increases demand for high-quality young sellers, incentivizes their quality provision, and increases their chance of obtaining the long-run quality signal. Moreover, it prompts established sellers to re-optimize their effort decision. Therefore, the net impact of introducing a less history-dependent signal on quality provision depends on underlying market fundamentals.