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On the Prevalence of Online Trade among Strangers: A Game-Theoretic Explanation

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  • Yong-Ju Lee

    (Samsung Research Institute of Finance)

Abstract

Motivated by the prevalence of online trade among strangers through consumer-toconsumer transactions, we examine by random matching the theoretical possibility of a social norm of trust and reciprocity emerging among strangers in the infinitely repeated buyer-sender game. Players are completely anonymous and interact only at randomly determined times. Based on the study by Kandori (1992), we show that the social norm of trust and the reciprocation of trust can be sustained in a population of self-interested, anonymous strangers when trust and reciprocity are attached to the community as a whole. Sufficient conditions that support trust and reciprocity as a sequential equilibrium are provided.

Suggested Citation

  • Yong-Ju Lee, 2011. "On the Prevalence of Online Trade among Strangers: A Game-Theoretic Explanation," Korean Economic Review, Korean Economic Association, vol. 27, pages 139-161.
    • Handle: RePEc:kea:keappr:ker-20110630-27-1-07
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Infinitely Repeated Game; Random Matching; Contagious Strategy; Folk Theorem; Buyer-Sender Game; Sequential Equilibrium;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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