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Designing Online Marketplaces: Trust and Reputation Mechanisms

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  • Michael Luca

Abstract

Online marketplaces have proliferated over the past decade, creating new markets where none existed. By reducing transaction costs, online marketplaces facilitate transactions that otherwise would not have occurred and enable easier entry of small sellers. One central challenge faced by designers of online marketplaces is how to build enough trust to facilitate transactions between strangers. This paper provides an economist’s tool kit for designing online marketplaces, focusing on trust and reputation mechanisms.

Suggested Citation

  • Michael Luca, 2017. "Designing Online Marketplaces: Trust and Reputation Mechanisms," Innovation Policy and the Economy, University of Chicago Press, vol. 17(1), pages 77-93.
    • Handle: RePEc:ucp:ipolec:doi:10.1086/688845
    DOI: 10.1086/688845
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    Cited by:

    1. Dominik Gutt & Jürgen Neumann & Wael Jabr & Dennis Kundisch, 2020. "The Fate of the App: Economic Implications of Updating under Reputation Resetting," Working Papers Dissertations 76, Paderborn University, Faculty of Business Administration and Economics.
    2. Liwei Li & Wei Wang, 2020. "The Effects of Online Trust-Building Mechanisms on Trust in the Sharing Economy: The Perspective of Providers," Sustainability, MDPI, vol. 12(5), pages 1-14, February.
    3. Gan, Siew Wei & Sarma, Vengadeshvaran & Tang, Yu Hoe & Sim, Siew Chen, 2022. "Entrepreneurship Training and Online Marketplace Participation among Female Persons with Disabilities," ADBI Working Papers 1342, Asian Development Bank Institute.
    4. Alberto Bracci & Jorn Boehnke & Abeer ElBahrawy & Nicola Perra & Alexander Teytelboym & Andrea Baronchelli, 2021. "Macroscopic properties of buyer-seller networks in online marketplaces," Papers 2112.09065, arXiv.org, revised Apr 2022.
    5. Diane Coyle & Shane O'Connor, 2019. "Understanding the Sharing Economy," Economic Statistics Centre of Excellence (ESCoE) Discussion Papers ESCoE DP-2019-04, Economic Statistics Centre of Excellence (ESCoE).
    6. Vijay Kamble & Nihar Shah & David Marn & Abhay Parekh & Kannan Ramchandran, 2023. "The Square Root Agreement Rule for Incentivizing Truthful Feedback on Online Platforms," Management Science, INFORMS, vol. 69(1), pages 377-403, January.
    7. Yunke Mai & Bin Hu & Saša Pekeč, 2023. "Courteous or Crude? Managing User Conduct to Improve On-Demand Service Platform Performance," Management Science, INFORMS, vol. 69(2), pages 996-1016, February.
    8. Marios Kokkodis, 2021. "Dynamic, Multidimensional, and Skillset-Specific Reputation Systems for Online Work," Information Systems Research, INFORMS, vol. 32(3), pages 688-712, September.
    9. Jikhan Jeong, 2020. "Identifying Consumer Preferences from User- and Crowd-Generated Digital Footprints on Amazon.com by Leveraging Machine Learning and Natural Language Processing," 2020 Papers pje208, Job Market Papers.
    10. Greiff, Matthias & Paetzel, Fabian, 2020. "Information about average evaluations spurs cooperation: An experiment on noisy reputation systems," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 334-356.
    11. Juan-Francisco Delgado-de Miguel & Tamar Buil-López Menchero & Miguel-Ángel Esteban-Navarro & Miguel-Ángel García-Madurga, 2019. "Proximity Trade and Urban Sustainability: Small Retailers’ Expectations Towards Local Online Marketplaces," Sustainability, MDPI, vol. 11(24), pages 1-20, December.
    12. Jeremy Watson & Megan MacGarvie & John McKeon, 2023. "It Was 50 Years Ago Today: Recording Copyright Term and the Supply of Music," Management Science, INFORMS, vol. 69(1), pages 351-376, January.
    13. Grace Gu & Feng Zhu, 2021. "Trust and Disintermediation: Evidence from an Online Freelance Marketplace," Management Science, INFORMS, vol. 67(2), pages 794-807, February.
    14. Hoyer, B. & van Straaten, D., 2022. "Anonymity and self-expression in online rating systems—An experimental analysis," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 98(C).
    15. Leoni, Giulia & Parker, Lee D., 2019. "Governance and control of sharing economy platforms: Hosting on Airbnb," The British Accounting Review, Elsevier, vol. 51(6).
    16. Heeseung Andrew Lee & Angela Aerry Choi & Tianshu Sun & Wonseok Oh, 2021. "Reviewing Before Reading? An Empirical Investigation of Book-Consumption Patterns and Their Effects on Reviews and Sales," Information Systems Research, INFORMS, vol. 32(4), pages 1368-1389, December.
    17. Krügel, Jan Philipp & Paetzel, Fabian, 2021. "The Impact of Fake Reviews on Reputation Systems and Efficiency," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242415, Verein für Socialpolitik / German Economic Association.

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