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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 toolkit for designing online marketplaces, focusing on trust and reputation mechanisms.

Suggested Citation

  • Michael Luca, 2016. "Designing Online Marketplaces: Trust and Reputation Mechanisms," NBER Working Papers 22616, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:22616
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    References listed on IDEAS

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    1. Weijia (Daisy) Dai & Ginger Jin & Jungmin Lee & Michael Luca, 2018. "Aggregation of consumer ratings: an application to Yelp.com," Quantitative Marketing and Economics (QME), Springer, vol. 16(3), pages 289-339, September.
    2. Dobrescu, Loretti I. & Luca, Michael & Motta, Alberto, 2013. "What makes a critic tick? Connected authors and the determinants of book reviews," Journal of Economic Behavior & Organization, Elsevier, vol. 96(C), pages 85-103.
    3. Charness, Gary & Haruvy, Ernan & Sonsino, Doron, 2007. "Social distance and reciprocity: An Internet experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 63(1), pages 88-103, May.
    4. Gary Bolton & Ben Greiner & Axel Ockenfels, 2013. "Engineering Trust: Reciprocity in the Production of Reputation Information," Management Science, INFORMS, vol. 59(2), pages 265-285, January.
    5. Lawrence F. Katz & Alan B. Krueger, 2016. "The Rise and Nature of Alternative Work Arrangements in the United States, 1995-2015," NBER Working Papers 22667, National Bureau of Economic Research, Inc.
    6. Ayres, Ian & Siegelman, Peter, 1995. "Race and Gender Discrimination in Bargaining for a New Car," American Economic Review, American Economic Association, vol. 85(3), pages 304-321, June.
    7. Fiona Morton & Florian Zettelmeyer & Jorge Silva-Risso, 2003. "Consumer Information and Discrimination: Does the Internet Affect the Pricing of New Cars to Women and Minorities?," Quantitative Marketing and Economics (QME), Springer, vol. 1(1), pages 65-92, March.
    8. Marianne Bertrand & Sendhil Mullainathan, 2004. "Are Emily and Greg More Employable Than Lakisha and Jamal? A Field Experiment on Labor Market Discrimination," American Economic Review, American Economic Association, vol. 94(4), pages 991-1013, September.
    9. Benjamin Edelman & Micahel Luca, 2014. "Digital Discrimination: The Case of Airbnb.com," Harvard Business School Working Papers 14-054, Harvard Business School.
    10. Jennifer L. Doleac & Luke C.D. Stein, 2013. "The Visible Hand: Race and Online Market Outcomes," Economic Journal, Royal Economic Society, vol. 123(11), pages 469-492, November.
    11. Jonathan V. Hall & Alan B. Krueger, 2015. "An Analysis of the Labor Market for Uber's Driver-Partners in the United States," Working Papers 587, Princeton University, Department of Economics, Industrial Relations Section..
    12. John J. Horton, 2017. "The Effects of Algorithmic Labor Market Recommendations: Evidence from a Field Experiment," Journal of Labor Economics, University of Chicago Press, vol. 35(2), pages 345-385.
    13. Michael Luca & Georgios Zervas, 2013. "Fake It Till You Make It: Reputation, Competition, and Yelp Review Fraud," Harvard Business School Working Papers 14-006, Harvard Business School, revised May 2015.
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    Citations

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    Cited by:

    1. Nuno Martins & Daniel Brandão & Heitor Alvelos & Sara Silva, 2020. "E-Marketplace as a Tool for the Revitalization of Portuguese Craft Industry: The Design Process in the Development of an Online Platform," Future Internet, MDPI, vol. 12(11), pages 1-23, November.
    2. Heidrun Hoppe-Wewetzer & Christian Siemering, 2022. "Advertisement-financed credit ratings," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 46(1), pages 188-206, January.
    3. Alex Wood-Doughty, 2016. "Do Employers Learn from Public, Subjective, Performance Reviews?," Working Papers 16-11, NET Institute.
    4. Marcello Basili & Maria Alessandra Rossi, 2018. "Platform-mediated reputation systems in the sharing economy and incentives to provide service quality: the case of ridesharing services," Department of Economics University of Siena 787, Department of Economics, University of Siena.
    5. Martin Lukac & André Grow, 2021. "Reputation systems and recruitment in online labor markets: insights from an agent-based model," Journal of Computational Social Science, Springer, vol. 4(1), pages 207-229, May.
    6. Tan, Zhi Ming & Aggarwal, Nikita & Cowls, Josh & Morley, Jessica & Taddeo, Mariarosaria & Floridi, Luciano, 2021. "The ethical debate about the gig economy: A review and critical analysis," Technology in Society, Elsevier, vol. 65(C).
    7. Lukac, Martin & Grow, André, 2020. "Reputation systems and recruitment in online labor markets: insights from an agent-based model," LSE Research Online Documents on Economics 114454, London School of Economics and Political Science, LSE Library.
    8. Kornberger, Martin & Pflueger, Dane & Mouritsen, Jan, 2017. "Evaluative infrastructures: Accounting for platform organization," Accounting, Organizations and Society, Elsevier, vol. 60(C), pages 79-95.

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    More about this item

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination

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