Electronic Intermediaries: Trust Building and Market Differentiation

As electronic commerce becomes increasingly popular, new intermediaries are emerging and transforming marketing and distribution channels. Intermediaries in electronic marketplaces provide the IT and business infrastructure to facilitate the completion of commercial transaction over interorganizational computer networks. If electronic intermediary services are introduced to wholesale markets where qualities vary, the provision of IT alone cannot create reliable electronic marketplaces for traders who have no pre-established relationships. To build trust among market participants, electronic intermediaries should establish policies and processes that regulate responsibilities and duties of market participants and legitimate transactions. Institutional policies and processes reduce risks and help establish trust among market participants. This paper provides empirical evidence that trust building processes by electronic intermediaries can lead to concentration of electronic transactions on high quality products, thus differentiating electronic and traditional markets.