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Designing Online Marketplaces: Trust and Reputation Mechanisms

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  • Michael Luca

    (Harvard Business School, Negotiation, Organizations & Markets Unit)

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," Harvard Business School Working Papers 17-017, Harvard Business School.
    • Handle: RePEc:hbs:wpaper:17-017
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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.
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    5. 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.
    6. 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.
    7. Paul Resnick & Richard Zeckhauser & John Swanson & Kate Lockwood, 2006. "The value of reputation on eBay: A controlled experiment," Experimental Economics, Springer;Economic Science Association, vol. 9(2), pages 79-101, June.
    8. 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..
    9. 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.
    10. 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.
    11. 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.
    12. Devin G. Pope & Justin R. Sydnor, 2011. "What’s in a Picture?: Evidence of Discrimination from Prosper.com," Journal of Human Resources, University of Wisconsin Press, vol. 46(1), pages 53-92.
    13. 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.
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    Cited by:

    1. 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).
    2. 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.
    3. 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.
    4. 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.
    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. 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.
    7. Alex Wood-Doughty, 2016. "Do Employers Learn from Public, Subjective, Performance Reviews?," Working Papers 16-11, NET Institute.
    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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