How to crack down on retailers’ unsubstantiated claims

Jane Porter | Jun 20, 2018

Sections Economics

Creative retailers can make all sorts of claims about their offerings—promising the quickest car rides, the freshest vegetables, coats hand stitched by well-paid workers, and more. 

But unsupported claims have limited effects on buyers when other sellers are willing to make verifiable promises, according to Washington University’s Daniel W. Elfenbein, Boston University’s Raymond Fisman, and University of North Carolina’s Brian McManus.

To better understand the effects of what they call “cheap talk” on market outcomes, the researchers examined data from eBay, which has more than 162 million active buyers and 800 million product listings a year. They looked specifically at eBay sellers who claimed a direct connection to some form of charitable giving—an activity that consumers value but can have trouble verifying. Because philanthropic giving tends to increase in the period directly after a natural disaster, the researchers focused on data for sales taking place in the months after Hurricane Katrina, which barreled into the city of New Orleans in August 2005. 

Using data from March 2005 to May 2006, the researchers distinguished between two groups: sellers who made unverified claims or promises about charitable giving and those who worked through eBay’s charity program, Giving Works, which lets sellers link their listings directly to verified charitable contributions. 

Looking specifically at post-Katrina data, Elfenbein, Fisman, and McManus observed a spike in sellers’ claims related to charity: the number of sellers making unverified claims went up by 350 percent, while the number of sellers using Giving Works went up 225 percent. But while the researchers find sellers made more unverified claims just after Hurricane Katrina hit, they also observe that consumers didn’t gravitate toward these listings when given the alternative of Giving Works listings. 

As a result, the sellers quickly shifted away from making unverified claims. The findings suggest that putting an external verification mechanism in place to legitimize and verify product attributes for consumers is an effective way to prevent cheap talk.