The Game Theory of eBay, and Akerlofs's Law

I've been watching eBay's proposed change to the rating system with interest, as its a very interesting exercise in studying Game Theory in a real life environment.

In the early days it was simple - you bought and sold stuff, and gave people ratings - and then people started gaming the system. Firstly it was the tit-for-tat where if you gave a bad rating, you got one back. Then it got a whole deal sleazier - here is a typical ploy, and a proposed counter:

There are feedback farms (yes, thousands of 1 cent ebooks just for feedback), which totally dilutes the hard work of gaining feedback through actual transactions.

How about next to each feedback item on a person's feedback page there's a simple $, or $$, or $$$ - just like the restaurant guides. So if a guy has a slew of $'s, and not $$$$, then no, you won't be buying that plasma TV from him. Or, just put the actual cost of the item next to each feedback comment.

There are plenty of accounts of sleazy buyers too by the way, the " I received it, it was damaged, give me 50% off" scam is typical.

Anyway, there is now a move to change the dynamic on eBay by not letting sellers respond to customer complaints - Feedback has been the centre of the self-policing aspect of eBay through which buyers and sellers rate each other. Now, for the first time, sellers will not be able to leave negative or neutral feedback about buyers. (They are welcome to continue to leave positive feedback.)

Sellers are not happy, but I wonder if they understand the Game Theory implications for buyer/seller asymmetry (ie Akerlof's Law).

In the initial system, sellers can obfuscate their true trustworthiness by creating noise - this means that systemically, buyers lower their estimates of seller quality and thus prices overall.

In the updated system, sellers are more at the mercy of buyers but there is also less obfuscation, so in theory bad sellers are driven out the market.

When this happens however, buyers have a higher trust in the remaining sellers so - in theory anyway - prices go up.

So, maybe its not such a bad idea - if you're an honest seller, that is....