The Need for Consumer Trust in Intermediaries in Electronic Markets: A Theoretical Framework

The rise of E-commerce came with the promise of disintermediation. Yet, from aggregators to authenticators, the online landscape today is scattered with intermediaries such as EBay and Verisign, aiming to streamline ecommerce transactions and building consumer trust in Electronic Markets. The central theme of this paper is to understand the contextual factors that lead to consumers’ need to trust intermediaries. In developing our arguments, the paper synthesizes perspectives from information economics, transaction cost economics, and literature on institution-based trust. Drawing on information economics, the paper contends that Electronic Markets embody certain inefficiencies, which in turn contribute towards heightening consumer uncertainty, especially under conditions of high information specificity. Heightened consumer uncertainty subsequently reduces consumer trust in Electronic Markets. It is only in the face of uncertainty and a loss of trust in Electronic Markets that consumers transfer their need to trust in intermediaries. However, the transference of trust is complete only agency costs from intermediation lie within consumer thresholds. A mini-case is used to illustrate our theoretical arguments, thus creating threads for more insightful investigations in the future.