ABSTRACT How discretionary gifts affect the informativeness of online reputation systems and market efficiency remains unclear, as theory provides limited insight. To address this issue, I conduct a laboratory experiment based on an infinitely repeated game in a market for an experience good with a reputation system, with two treatments differing in whether gifts are allowed. The results show that allowing gifts neither compromises the informativeness of the reputation system nor affects market efficiency or the distribution of surplus between buyers and sellers. Ratings remain predictive of product quality, even when gifts are present. At the same time, sellers persistently provide substantial and costly gifts, despite the fact that doing so reduces their payoffs. Further analysis suggests that gifting is a less cost‐effective strategy for building reputation than improving product quality. The observed gifting behavior appears broadly consistent with strategic responses to market competition, though alternative interpretations remain possible.
Liang Qiao (Thu,) studied this question.