Recent advancements in communication and social technologies have resulted in the growth of peer-to-peer (P2P) marketplaces, such as Xianyu and Poshmark. Individual sellers in these markets, most of whom are unbranded and lack credibility, often face immense challenges in building trust to facilitate P2P transactions. We consider the potential of sellers’ use of social media to establish trust and drive sales. Specifically, we address whether social media use benefits the sales performance of individual sellers, and how social media use affects customer retention and acquisition. We draw on social capital theory to explore the theoretical mechanisms by which social media participation may affect sales, hypothesizing that such participation enables the seller to accumulate social capital and develop trust. We empirically test this by exploiting a quasi-natural experiment wherein a large P2P marketplace for second-hand goods (Xianyu) unexpectedly removed its social media feature (Fishponds). We employ a difference-in-differences design, leveraging a proprietary data set capturing social media participation and sales activities for individual sellers, covering more than 180,000 transactions over a multi-week period around the event. We find that sellers who initially participated in social media channels experienced a significant decline in sales after the shutdown, which is attributable to poorer customer retention and acquisition. We explore heterogeneity in the effects and find that the sellers who benefit most from social media participation are those with the most to gain from trust-building. An additional online controlled experiment provides further evidence of the trust-building mechanism. Our study implies individual sellers can harness social media to generate additional sales from existing and new customers. These insights are important, as they speak to the value of social media channels as drivers of trust in P2P marketplaces.
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