The Effect of ID Verification in Online Auctions: Evidence from a Field Experiment

Problems that arise in online markets due to asymmetric information are exacerbated by the fact that transactions in these markets are completely anonymous. The online auction mechanism provided by eBay is an example of such a market. To combat the anonymity problem, eBay allows sellers to become ""ID Verified"" by paying a small fee to have their identity confirmed by a credit information company. Doing so may reassure potential bidders that the seller is legitimate since their identity is known, and there is more assurance that the seller could be tracked down and punished should a problem arise. Identifying the effect of ID verification is difficult using naturally occurring data, however, because the service tends to be used only by sellers who have a well-established reputation. It is thus difficult to determine whether an improved outcome is due to the seller's reputation or due to ID verification. This study alleviates this concern by conducting a field experiment where items are sold with different IDs that have different characteristics, and finds little evidence that bidders place any value on ID verification.