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Trust and risk 'not important concerns' for online buyers

November 24, 2011 - Washington

A new study has challenged a common assumption that trust and risk are always important considerations for buyers in online marketplaces.

Instead the researchers argued that auction sites may have "over-invested in institutional structures" to reduce buyers' economic risk while ignoring social elements of their transactions.

It has been widely assumed that online auction sites always need to build trust and reduce risk, but the new study counters that it is not necessarily "the higher the better" for risk-reducing safeguards - which are costly for companies to build and maintain - because some buyers might view them as stifling good deals while others might not consider them at all.

Paul Pavlou of Temple University's Fox School of Business and David Gefen of Drexel University's LeBow College of Business, both in Philadelphia, analysed data from 398 buyers on eBay's and Amazon's marketplaces to gauge buyers' assessments of online safeguards, such as escrow services, feedback mechanisms and market rules.

The researchers argue that the primary factors buyers consider when making purchases online are risk (potential economic loss) and trust (social norms with sellers).

Pavlou and Gefen state that auction safeguards generally guard against risk and ignore elements of trust.

But when typical buyers make online purchases, as long as there is some level of security - such as credit card guarantees - they really care about whether or not they can trust the community of sellers.

The authors found that risk is only a significant consideration for buyers using marketplaces with moderate levels of safeguards.

In unsafe markets, buyers are simply unwilling to transact. In very safe markets, the chance of risk is so low that economic loss isn't even a concern.

They also found that transaction activity peaks in online marketplaces with moderate safeguards.

The findings will in a forthcoming article in Information Systems Research.


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