Theoretical propositions stressing the importance of trust, reciprocity, and reputation for cooperation in social exchange relations are deeply rooted in classical sociological thought. Today’s online markets provide a unique opportunity to test these theories using unobtrusive data. Our study investigates the mechanisms promoting cooperation in an online-auction market where most transactions can be conceived as one-time-only exchanges. We first give a systematic account of the theoretical arguments explaining the process of cooperative transactions. Then, using a large dataset comprising 14,627 mobile phone auctions and 339,517 DVD auctions, we test key hypotheses about the effects of traders’ reputations on auction outcomes and traders’ motives for leaving feedback. Our statistical analyses show that sellers with better reputations have higher sales and obtain higher prices. Furthermore, we observe a high rate of participation in the feedback system, which is largely consistent with strong reciprocity—a predisposition to unconditionally reward (or punish) one’s interaction partner’s cooperation (or defection)—and altruism—a predisposition to increase one’s own utility by elevating an interaction partner’s utility. Our study demonstrates how strong reciprocity and altruism can mitigate the free-rider problem in the feedback system to create reputational incentives for mutually beneficial online trade.
AndreoniJames. 1990. “Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving.” Economic Journal100:464–77.
4.
BaSulinPavlouPaul A.2002. “Evidence of the Effect of Trust Building Technology in Electronic Markets: Price Premiums and Buyer Behavior.” MIS Quarterly26:243–68.
5.
BajariPatrickHortacsuAli. 2004. “Economic Insights from Internet Auctions.” Journal of Economic Literature42:457–86.
6.
BeckerGary S.1976. “Altruism, Egoism and Genetic Fitness: Economics and Sociobiology.” Journal of Economic Literature14:817–26.
7.
BlauPeter M.1964. Exchange and Power in Social Life. New York: Wiley.
8.
BoltonGary E.GreinerBenOckenfelsAxel. 2013. “Engineering Trust: Reciprocity in the Production of Reputation Information.” Management Science59:265–85.
9.
BoltonGary E.KatokElenaOckenfelsAxel. 2004. “How Effective Are Electronic Reputation Mechanisms? An Experimental Investigation.” Management Science50:1587–1602.
10.
BrownMartinFalkArminFehrErnst. 2004. “Relational Contracts and the Nature of Market Interactions.” Econometrica72:747–80.
11.
BuskensVincentRaubWerner. 2002. “Embedded Trust: Control and Learning.” Pp. 167–202 in Group Cohesion, Trust and Solidarity, edited by LawlerE. J.ThyeS. R.Amsterdam: JAI Press.
12.
CamererColin F.2003. Behavioral Game Theory. Princeton, NJ: Princeton University Press.
13.
ColemanJames S.1990. Foundations of Social Theory. Cambridge, MA: The Belknap Press of Harvard University Press.
14.
CookKaren S.HardinRussellLeviMargaret. 2007. Cooperation Without Trust?New York: Russell Sage Foundation.
15.
CookKaren S.RiceEric R. W.GerbasiAlexandra. 2004. “The Emergence of Trust Networks Under Uncertainty: The Case of Transitional Economies–Insights from Social Psychological Research.” Pp. 193–212 in Creating Social Trust in Post-Socialist Transition, edited by KornaiJ.RothsteinB.Rose-AckermanS.New York: Palgrave MacMillan.
16.
CosmidesLedaToobyJohn. 1992. “Cognitive Adaptations for Social Exchange.” Pp. 163–228 in The Adapted Mind, edited by BarkowJ. H.CosmidesL.ToobyJ.New York: Oxford University Press.
17.
DasguptaPartha. 1988. “Trust as a Commodity.” Pp. 49–72 in Trust: Making and Breaking Cooperative Relations, edited by GambettaD.Oxford: Basil Blackwell.
DellarocasChrysanthosFanMingWoodCharles A.2004. “Self-Interest, Reciprocity, and Participation in Online Reputation Systems.” Working Paper 205, MIT Center for Digital Business.
20.
DellarocasChrysanthosWoodCharles A.2008. “The Sound of Silence in Online Feedback: Estimating Trading Risks in the Presence of Reporting Bias.” Management Science54:460–76.
21.
DiekmannAndreasJannBenWyderDavid. 2009. “Trust and Reputation in Internet Auctions.” Pp. 139–65 in eTrust: Forming Relationships in the Online World, edited by CookK. S.SnijdersC.BuskensV.CheshireC.New York: Russell Sage.
22.
DiMaggioPaulLouchHugh. 1998. “Socially Embedded Consumer Transactions: For What Kinds of Purchases Do People Most Often Use Networks?” American Sociological Review63:619–37.
23.
DownsAnthony. 1957. An Economic Theory of Democracy. New York: Harper & Row.
24.
FehrErnstFischbacherUrsGächterSimon. 2002. “Strong Reciprocity, Human Cooperation, and the Enforcement of Social Norms.” Human Nature13:1–25.
25.
GambettaDiego. 2009. “Signaling.” Pp. 168–94 in The Oxford Handbook of Analytical Sociology, edited by HedströmP.BearmanP.Oxford: Oxford University Press.
26.
GintisHerbert. 2000. “Strong Reciprocity and Human Sociality.” Journal of Theoretical Biology206:169–79.
27.
GouldnerAlvin W.1960. “The Norm of Reciprocity: A Preliminary Statement.” American Journal of Sociology25:161–78.
28.
GranovetterMark. 1992. “Problems of Explanation in Economic Sociology.” Pp. 25–56 in Networks and Organizations: Structure, Form, and Action, edited by NohiraN.EcclesR. G.Boston: Harvard Business School Press.
29.
GreifAvner. 1989. “Reputation and Coalitions in Medieval Trade: Evidence on the Maghribi Traders.” Journal of Economic History49:857–82.
30.
GualaFrancesco. 2012. “Reciprocity: Weak or Strong? What Punishment Experiments Do (and Do Not) Demonstrate.” Behavioral and Brain Sciences35:1–15.
31.
GuimarãesPauloPortugalPedro. 2010. “A Simple Feasible Alternative Procedure to Estimate Models with High-Dimensional Fixed Effects.” Stata Journal10:628–49.
32.
GulatiRanjayGargiuloMartin. 1999. “Where Do Interorganizational Networks Come From?” American Journal of Sociology104:1439–93.
33.
GüthWernerOckenfelsAxel. 2003. “The Coevolution of Trust and Institutions in Anonymous and Non-anonymous Communities.” Pp. 157–74 in Jahrbuch für Neue Politische Ökonomie, edited by HollerM. J.KliemtH.SchmidtchenD.StreitM.Tübingen: Mohr Siebeck.
34.
HardinRussell. 2002. Trust and Trustworthiness. New York: Russell Sage Foundation.
HeathAnthony. 1976. Rational Choice and Social Exchange: A Critique of Exchange Theory. Cambridge: Cambridge University Press.
37.
HeckathornDouglas D.1989. “Collective Action and the Second-Order Free-Rider Problem.” Rationality and Society1:78–100.
38.
JappelliTullioPaganoMarco. 2002. “Information Sharing, Lending and Defaults: Cross-Country Evidence.” Journal of Banking & Finance26:2017–45.
39.
JianLianMacKie-MasonJeffrey K.ResnickPaul. 2010. “I Scratched Yours: The Prevalence of Reciprocation in Feedback Provision on eBay.” The B.E. Journal of Economic Analysis & Policy10:Article92.
40.
JonesCandaceHesterlyWilliam S.BorgattiStephen P.1997. “A General Theory of Network Governance: Exchange Conditions and Social Mechanisms.” Academy of Management Review22:911–45.
41.
KollockPeter. 1994. “The Emergence of Exchange Structures: An Experimental Study of Uncertainty, Commitment, and Trust.” American Journal of Sociology100:313–45.
42.
KollockPeter. 1999. “The Production of Trust in Online Markets.” Pp. 99–123 in Advances in Group Processes, Vol. 16, edited by LawlerE. J.MacyM. W.Amsterdam: JAI Press.
43.
LivingstonJeffrey A.2003. “What Attracts a Bidder to a Particular Internet Auction?” Pp. 165–87 in Organizing the New Industrial Economy, edited by BayeM. R.Amsterdam: Elsevier.
44.
LongJ. Scott. 1997. Regression Models for Categorical and Limited Dependent Variables. Thousand Oaks, CA: Sage.
45.
Lucking-ReileyDavidBryanDougPrasadNaghiReevesDaniel. 2007. “Pennies from eBay: The Determinants of Price in Online Auctions.” Journal of Industrial Economics55:223–33.
46.
MalinowskiBronislaw. 1922. Argonauts of the Western Pacific: An Account of Native Enterprise and Adventure in the Archipelagoes of Melanesian New Guinea. London: Routledge & Kegan Paul.
47.
MalinowskiBronislaw. 1926. Crime and Custom in Savage Society. London: Routledge & Kegan Paul.
48.
MaussMarcel. [1950] 1990. The Gift: The Form and Reason for Exchange in Archaic Society. London: Routledge.
49.
MilgromPaul R.NorthDouglass C.WeingastBarry R.1990. “The Role of Institutions in the Revival of Trade: The Law Merchant, Private Judges, and the Champagne Fairs.” Economics and Politics2:1–23.
50.
MoodCarina. 2010. “Logistic Regression: Why We Cannot Do What We Think We Can Do, and What We Can Do About It.” European Sociological Review26:67–82.
51.
NowakMartin A.SigmundKarl. 2005. “Evolution of Indirect Reciprocity.” Nature437:1291–98.
52.
PrzepiorkaWojtek. 2013. “Buyers Pay For and Sellers Invest in a Good Reputation: More Evidence from eBay.” Journal of Socio-Economics42:31–42.
53.
de QuervainDominique J.-F.FischbacherUrsTreyerValerieSchellhammerMelanieSchnyderUlrichBuckAlfredFehrErnst. 2004. “The Neural Basis of Altruistic Punishment.” Science305:1254–58.
54.
ResnickPaulZeckhauserRichard. 2002. “Trust among Strangers in Internet Transactions: Empirical Analysis of eBay’s Reputation System.” Pp. 127–57 in The Economics of the Internet and E-Commerce, edited by BayeM. R.Amsterdam: Elsevier.
55.
ResnickPaulZeckhauserRichardFriedmanEricKuwabaraKo. 2000. “Reputation Systems.” Communications of the ACM43:45–48.
56.
ResnickPaulZeckhauserRichardSwansonJohnLockwoodKate. 2006. “The Value of Reputation on eBay: A Controlled Experiment.” Experimental Economics9:79–101.
57.
SchmiederJohannes F.2009. “gpreg: Stata Module to Estimate Regressions with Two Dimensional Fixed Effects.” Boston College, Department of Economics, Statistical Software Components, S457048.
58.
ShapiroCarl. 1983. “Premiums for High Quality Products as Return to Reputation.” Quarterly Journal of Economics98:659–80.
59.
SnijdersChrisWeesieJeroen. 2009. “Online Programming Markets.” Pp. 166–85 in eTrust: Forming Relationships in the Online World, edited by CookK. S.SnijdersC.BuskensV.CheshireC.New York: Russell Sage Foundation.
60.
TriversRobert L.1971. “The Evolution of Reciprocal Altruism.” Quarterly Review of Biology46:35–57.
61.
UzziBrian. 1997. “Social Structure and Competition in Interfirm Networks: The Paradox of Embeddedness.” Administrative Science Quarterly42:35–67.
62.
YamagishiToshioCookKaren S.WatabeMotoki. 1998. “Uncertainty, Trust and Commitment Formation in the United States and Japan.” American Journal of Sociology104:165–94.
63.
YamagishiToshioMatsudaMasafumiYoshikaiNoriakiTakahashiHiroyukiUsuiYukihiro. 2009. “Solving the Lemons Problem with Reputation.” Pp. 73–108 in eTrust: Forming Relationships in the Online World, edited by CookK. S.SnijdersC.BuskensV.CheshireC.New York: Russell Sage Foundation.
64.
ZuckerLynne G.1986. “Production of Trust: Institutional Sources of Economic Structure, 1840–1920.” Research in Organizational Behavior8:53–111.
Supplementary Material
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
