Evidence of the Effect of Trust Building Technology in Electronic Markets: Price Premium and Buyer Behavior

MIS Quarterly 26, 3, 243-268

26 Pages Posted: 18 Jan 2014

See all articles by Paul A. Pavlou

Paul A. Pavlou

University of Houston - C.T. Bauer College of Business

Sulin Ba

University of Connecticut School of Business

Date Written: September 1, 2002

Abstract

Despite the wide use of reputational mechanisms such as eBay’s Feedback Forum to promote trust, empirical studies have shown conflicting results as to whether online feedback mechanisms induce trust and lead to higher auction prices. This study examines the extent to which trust can be induced by proper feedback mechanisms in electronic markets, and how some risk factors play a role in trust formation. Drawing from economic, sociological, and marketing theories and using data from both an online experiment and an online auction market, we demonstrate that appropriate feedback mechanisms can induce calculus-based credibility trust without repeated interactions between two transacting parties. Trust can mitigate information asymmetry by reducing transaction-specific risks, therefore generating price premiums for reputable sellers. In addition, the research also examines the role that trust plays in mitigating the risks inherent in transactions that involve very expensive products.

Keywords: Trust, credibility, reputation, information asymmetry, price premiums, feedback mechanisms, electronic markets, online risks

Suggested Citation

Pavlou, Paul A. and Ba, Sulin, Evidence of the Effect of Trust Building Technology in Electronic Markets: Price Premium and Buyer Behavior (September 1, 2002). MIS Quarterly 26, 3, 243-268. Available at SSRN: https://ssrn.com/abstract=2380279

Paul A. Pavlou (Contact Author)

University of Houston - C.T. Bauer College of Business

Houston, TX 77204-6021
United States

Sulin Ba

University of Connecticut School of Business ( email )

368 Fairfield Road
Storrs, CT 06269-2041
United States

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