Designing Online Marketplaces: Trust and Reputation Mechanisms
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.
Kaye Kirschner, Janet Lu, and Patrick Rooney provided excellent research assistance. I am grateful to Shane Greenstein, Joshua Lerner, Yasin Ozcan, Scott Stern, and participants at the NBER Innovation Policy and Economics workshop. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.
Designing Online Marketplaces: Trust and Reputation Mechanisms, Michael Luca. in Innovation Policy and the Economy, Volume 17, Greenstein, Lerner, and Stern. 2017