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

Abstract

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 a large e-commerce marketplace, we show that in the presence of a reputation-based quality certification, introducing a second certification tier that is less history-dependent and less demanding mitigates the cold-start problem: it increases demand for high-quality young sellers, incentivizes their quality provision, and increases their chance of eventually obtaining the top-tier certification. 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.