An Inverted-u Theory of Trust: the Moderating Role of Perceived Regulatory Effectiveness of Online Marketplaces

Past research has widely regarded trust as unconditionally facilitating transaction behavior, and perceived risk as unconditionally detracting from it. This study advocates the necessity to examine trust and perceived risk within the broader perspective of the societal context. We propose the perceived regulatory effectiveness of online marketplaces to moderate the impact of trust on transaction behavior. More specifically, we hypothesize that the degree to which buyer’s trust affects transaction intentions will vary in an inverted U manner depending on the perception buyers have in the regulatory effectiveness of the online marketplace. The impact of trust on transaction intentions will increase as the buyer’s perceived regulatory effectiveness increases from low to medium levels, but it will decrease as the buyer’s perceived effectiveness increases from medium to high levels. Moreover, the perceived regulatory effectiveness of the online marketplace is also hypothesized to reduce the impact of perceived risk on transaction intentions. These moderating effects were examined and empirically supported in the context of eBay’s and Amazon’s online auction marketplaces. Implications for integrating the perceived regulatory effectiveness of online marketplaces into existing trust and risk models are discussed.