Entrepreneurs on the Darknet: Reaction to Negative Feedback

Abstract

Reputation is one of the key assets of a digital entrepreneur in markets for experience goods, especially in settings like Darknet and anonymous marketplaces. But what happens if this asset is diminished by a shock, i.e. negative feedback? We study how entrepreneurs on anonymous marketplaces respond to negative feedback by adjusting their product portfolio, or even exiting the market altogether. We find that the entrepreneurs are more likely to exit following negative feedback, but that a entrepreneur’s accumulated transactions experience on the market platform negatively moderates this. Interestingly, the entrepreneurs that do remain tend to expand their product portfolio. This effect, however, is again driven by entrepreneurs with relative high transactions experience, i.e. those with a high prior transactions volume. These results suggest that the reputation and the transactions experience of an entrepreneur interact in intricate ways to drive an entrepreneur’s choice of remaining in the market or adjusting her portfolio. We derive managerial and policy implications of these results.

Keywords: Digital Entrepreneurship, Reputation, Anonymous Marketplaces, Illicit Drugs, Darknet