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Title:How social reputation networks interact with competition in anonymous online trading: an experimental study PDF Logo
Authors:Bolton, Gary E.
Loebbecke, Claudia
Ockenfels, Axel
Issue Date:2008
Series/Report no.:CESifo working paper 2270
Abstract:Many Internet markets rely on ‘feedback systems’, essentially social networks of reputation, to facilitate trust and trustworthiness in anonymous transactions. Market competition creates incentives that arguably may enhance or curb the effectiveness of these systems. We investigate how different forms of market competition and social reputation networks interact in a series of laboratory online markets, where sellers face a moral hazard. We find that competition in strangers networks (where market encounters are one-shot) most frequently enhances trust and trustworthiness, and always increases total gains-from-trade. One reason is that information about reputation trumps pricing in the sense that traders usually do not conduct business with someone having a bad reputation not even for a substantial price discount. We also find that a reliable reputation network can largely reduce the advantage of partners networks (where a buyer and a seller can maintain repeated exchange with each other) in promoting trust and trustworthiness if the market is sufficiently competitive. We conclude that, overall, competitive online markets have more effective social reputation networks.
Subjects:reputation systems
e-commerce
internet markets
trust
JEL:D44
L14
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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