TRUSTWORTHINESS AS A SOURCE OF COMPETITIVE ADVANTAGE IN ONLINE AUCTION MARKETS.

Abstract

Online auctions introduce greater risks compared to their physical counterparts by separating transacting parties in time and in space. Despite the additional risks that information asymmetry, security concerns, and identity and product quality uncertainty raise, online auction markets (e.g. eBay, Freemarkets) are proliferating in practice. Since Internet technologies facilitate the collection, aggregation, and dissemination of information to a global audience with minimal distribution costs, feedback systems have been theorized to provide incentives for cooperative conduct, reduce opportunism, and facilitate online transactions. This paper aims to explain and provide empirical evidence on how participants in online auction markets have utilized the pervasive connectivity of the Internet to institute an effective feedback mechanism that replicates the phenomenon of word-of-mouth (WOM) communication to mitigate risks, transact successfully in an impersonal environment, and build a competitive advantage for reputable sellers. While reputation-based feedback mechanisms have been shown to engender trust in sellers and cause price differences in online auctions, the extant literature has dealt with simple feedback scores (positing and negative ratings). However, the most crucial information about a seller resides in the buyers' written comments, which imitate WOM communication. While objective evaluations mostly influence the credibility (reliability, honesty) toward auction sellers, the information from feedback comments is hypothesized to engender benevolence (goodwill trust). This paper utilizes content analysis and expert evaluations to analyze written comments for 155 sellers and provide evidence for the existence of benevolence in impersonal auction markets. Drawing upon Barney and Hansen (1994), the two forms of trust (credibility and benevolence) are hypothesized to build a competitive advantage for sellers, manifested through price premiums. The results support the proposed hypotheses and have superior explanatory power compared to previous studies. The paper concludes with the implications of this study for building successful exchange relationships and sustainable competitive advantage by effectively managing technological innovations.