Building Effective Online Marketplaces with Institution-Based Trust

Despite the inherent risk arising from separating buyers and sellers, networked online marketplaces are proliferating. We describe how online auction marketplaces take advantage of institutional structures to build buyer trust in auction sellers, mitigate risk, increase satisfaction, and promote transaction intentions. It is hypothesized, based on institutional trust (Zucker 1986), that buyer trust in auction sellers can be increased, beyond past experience with sellers, through structural assurances, such as buyer-driven certification, auction house escrows, and credit card guarantees. We examined buyer transaction intentions, mediated by trusting beliefs, risk reduction, and satisfaction. The model is tested with 274 buyers in Amazon’s online auction marketplace. The results support the hypotheses, highlighting the importance of institution-based trust in online networks. Implications are discussed.