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More Trusting, Less Trust? An Investigation of Early E-Commerce in China

Author

Listed:
  • Hongbin Cai
  • Ginger Z. Jin
  • Chong Liu
  • Li-An Zhou

Abstract

Trust is vital for market development, but how can trust be enhanced in a marketplace? A common view is that more trusting may help to build trust, especially in less developed economies. In this paper, we argue that more trusting may lead to less trust. We set up a rational expectation model in which a marketplace uses buyer protection to promote buyer trusting. Our results show that buyer protection may reduce trust in equilibrium and even hinder market expansion because it triggers differential entry between honest and strategic sellers and may induce more cheating from strategic sellers. Using a large transaction-level data set from the early years of Eachnet.com (an eBay equivalent in China), we find evidence that is consistent with the model predictions. Stronger buyer protection leads to less favorable evaluation of seller behavior and is associated with slower market expansion. These findings suggest that a trust-promoting policy aiming at buyer trusting may not be effective if it is not accompanied by additional incentives to improve seller trustworthiness.

Suggested Citation

  • Hongbin Cai & Ginger Z. Jin & Chong Liu & Li-An Zhou, 2013. "More Trusting, Less Trust? An Investigation of Early E-Commerce in China," NBER Working Papers 18961, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:18961
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    References listed on IDEAS

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    Cited by:

    1. Grégory Jolivet & Bruno Jullien & Fabien Postel-Vinay, 2014. "Reputation and Pricing on the e-Market: Evidence from a Major French Platform," SciencePo Working papers Main hal-03460312, HAL.
    2. Jolivet, Grégory & Jullien, Bruno & Postel-Vinay, Fabien, 2016. "Reputation and prices on the e-market: Evidence from a major French platform," International Journal of Industrial Organization, Elsevier, vol. 45(C), pages 59-75.
    3. repec:spo:wpmain:info:hdl:2441/4firg7dmo68rdasf15hi85vn53 is not listed on IDEAS
    4. Lingfang (Ivy) Li & Erte Xiao, 2014. "Money Talks: Rebate Mechanisms in Reputation System Design," Management Science, INFORMS, vol. 60(8), pages 2054-2072, August.
    5. Prüfer, Jens, 2018. "Trusting privacy in the cloud," Information Economics and Policy, Elsevier, vol. 45(C), pages 52-67.
    6. repec:hal:spmain:info:hdl:2441/4firg7dmo68rdasf15hi85vn53 is not listed on IDEAS
    7. Xiang Hui & Maryam Saeedi & Zeqian Shen & Neel Sundaresan, 2016. "Reputation and Regulations: Evidence from eBay," Management Science, INFORMS, vol. 62(12), pages 3604-3616, December.
    8. Grace Gu & Feng Zhu, 2021. "Trust and Disintermediation: Evidence from an Online Freelance Marketplace," Management Science, INFORMS, vol. 67(2), pages 794-807, February.
    9. Prüfer, J.O., 2014. "Trusting Privacy in the Cloud," Other publications TiSEM 556bdb81-1b26-4692-877c-1, Tilburg University, School of Economics and Management.
    10. Cai, Hongbin & Jin, Ginger Zhe & Liu, Chong & Zhou, Li-an, 2014. "Seller reputation: From word-of-mouth to centralized feedback," International Journal of Industrial Organization, Elsevier, vol. 34(C), pages 51-65.

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    More about this item

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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