Reputational Mechanisms in Consumer-to-Consumer Online Commerce

Abstract

The emergence of the internet is similar to the industrial revolution since it fundamentally changed the costs of transmitting information. However, low costs of transmitting information do not address the issue of the quality of information. One area of online commerce where quality of information became a crucial factor to the development and growth of the marketplace was consumer-to-consumer commerce. Asymmetry of information emerged as a detrimental threat to the growth and development of consumer-to-consumer commerce and yet the market found an intuitive and creative way of addressing the issue: feedback and rating mechanisms. Perhaps the greatest example of this is the story of success is the largest consumer-to-consumer platform: eBay.