Bilateral Rating Systems in Online Marketplaces: Design and Impact

Kartik Hosanagar, Operations, Information and Decisions, The Wharton School; Senthil Veeraraghavan, Operations, Information and Decisions, The Wharton School; and Chen Jin, National University of Singapore;

Abstract: In recent years, digital innovations have fundamentally changed how many services and resources are put together and deployed. These include marketplaces like Uber and Airbnb that help match decentralized supply with demand. Rating systems are known to be important enablers of trust in such markets in which complete strangers transact with one another. However, these new business models also raise fundamentally new questions related to the role of rating systems in bridging information asymmetry and trust issues. For example, not only can customers rate service providers but the providers can also rate customers and use these ratings to select which customers to service (or not). This research proposal seeks to examine the role of ratings in reducing market friction and enabling of better match between supply and demand.