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This paper studies the role of communication and reputation in market interactions using data from online procurement auctions. Not only positive reputation ratings but also engaging in communication increases a bidder's probability of winning the auction. Messages are primarily used to reduce the asymmetric information associated with transactions. In order to counteract problems of asymmetric information, electronic markets often implement reputation mechanisms which allow transaction partners to rate each other's behavior after trading. Reputation mechanisms can be used by traders to communicate information about the behavior of their previous transaction partners to other market participants and can alleviate the problems of moral hazard and adverse selection (Dellarocas, 2006).
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