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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. 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.
    2. 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.
    3. Weijia Dai & Ginger Z. Jin & Jungmin Lee & Michael Luca, 2012. "Aggregation of Consumer Ratings: An Application to Yelp.com," NBER Working Papers 18567, National Bureau of Economic Research, Inc.
    4. 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.
    5. 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.
    6. 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.
    7. 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.
    8. 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.
    9. 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.
    10. 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..
    11. Hoffman, Elizabeth & McCabe, Kevin & Smith, Vernon L, 1996. "Social Distance and Other-Regarding Behavior in Dictator Games," American Economic Review, American Economic Association, vol. 86(3), pages 653-660, June.
    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.
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