Abstract
Consumer ratings are crucial in creating and sustaining trust and trustworthiness in e-commerce markets. Thus, it is important to know whether online trading can survive bad mouthing among participants. We use controlled lab experiments to test whether market efficiency (measured by the percentage of successful trades) is affected by unfair negative ratings, and whether announcing the percentage of unfair ratings in the market makes any difference. We find that market efficiency is higher when rating information is provided than when no rating information is provided, even when unfair and ambiguous ratings are present. We also find that buyers behave differently when unfair rating information exists; however, no matter whether the percentage of unfair ratings is known, market efficiency is not significantly different from that in the market without unfair ratings.
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