Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/26315
Authors: 
Bolton, Gary E.
Loebbecke, Claudia
Ockenfels, Axel
Year of Publication: 
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

Files in This Item:
File
Size
438.83 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.