New research: Reputation pays off in the sharing economy

July 7, 2017 |

Building trust is crucial for any peer-to-peer marketplace or sharing economy business to ensure activity and engagement for their community. New research explores the value of reputation based on rating and review systems as the most valuable mechanism.

The study published recently by German researchers was based on data from the most well-known sharing platform Airbnb and set out to discuss the economic value of reputation on the platform. The outcome showed that reputational attributes, such as star ratings and written reviews, does indeed influence prices of listings.

More ratings decrease listing prices

Looking closer at the findings the researchers discovered as expected that a high average rating (the well-known 5-star system) would allow hosts to increase prices. More surprisingly perhaps, the researchers found that a more reliable (ie. many ratings) reputation would decrease listing prices.

Reputational attributes, such as star ratings and written reviews, does indeed influence prices of listings

 

The reasons for lower prices when many ratings are added to a listing might be caused by popular low-budget accommodation in touristy areas which are in high demand and quality falls. It might also work in the opposite direction; that low prices mean higher demand and is thus reflected in more ratings.

Photos are important, ID verification not

The researchers also looked into other trust building features such as photos, the length of membership, ID verification and the super host badge. Besides ratings and reviews as the main driver for economic value, uploading more photos and having a track record reflected in a long-standing membership was the most important features. Interestingly, ID verification scored low in terms of economic impact.

Reputation rating systems are not perfect, however, they do hold immense importance in these platforms

 

Naturally, there are limitations to comparing Airbnb with other sharing platforms or P2P transactions as the intimacy of the transaction might vary from car sharing to second-hand marketplaces. In addition, reputation rating systems are not perfect, however, they do hold immense importance in these platforms.

Although the notion of trust is arbitrary, trust-building mechanisms and tools can help establish a sense of safety and security.