  Most online markets establish reputation systems to assist building trust
between sellers and buyers. Sellers' reputations not only provide guidelines
for buyers but may also inform sellers their optimal pricing strategy. In this
research, we assumed two types of buyer: informed buyers and uninformed buyers.
Informed buyers know more about the reputation about the seller but may incur a
search cost. Then we developed a benchmark model and a competition model. We
found that high reputation sellers and low reputation sellers adapt different
pricing strategy depending on the informativeness of buyers and the competition
among sellers. With a large proportion of informed buyers, high reputation
sellers may charge lower price than low reputation sellers, which exists a
negative price premium effect, in contrast to conclusions of some previous
studies. Empirical findings were in consistence with our theoretical models. We
collected data of five categories of products, televisions, laptops, cosmetics,
shoes, and beverages, from Taobao, a leading C2C Chinese online market.
Negative price premium effect was observed for TVs, laptops, and cosmetics;
price premium effect was observed for beverages; no significant trend was
observed for shoes. We infer product value and market complexity are the main
factors of buyer informativeness.
