Does Cheap Talk Affect Market Outcomes? Evidence from Ebay

Abstract

We study cheap talk by firms and responses by their consumers, focusing on unverifiable promises of charitable donations on eBay during 2005–2006. Cheap talk listings have lower sales probabilities but sell at higher prices when successful. The negative relationship between cheap talk and sales is concentrated in the months following Hurricane Katrina, a time when verifiable and unverifiable charity listings increased dramatically. Finally, we show that cheap talk sellers have lower quality ratings than those making verifiable donations. Our results suggest that buyers ( justifiably) avoid cheap talk listings when credible quality signals are available, thus limiting the extent of cheap talk. (JEL D12, D82, D83, L15, L31, M31)