To Be or Not to Be Social? Socially Embedded Marketplace Design

Abstract

A marketplace incorporated within a social networking platform is said to be socially embedded. In such a marketplace, the structure of social relationships can influence the choice of transacting partners as well as the terms of transactions. We study the role of different information policies (full anonymity/partial anonymity/no anonymity) and uncertainty regarding product quality on offers and acceptance decisions in a socially embedded marketplace. We use variations of an Ultimatum Game to study the problem both theoretically and experimentally. We show that the sellers receive the highest surplus under No Anonymity policy, but the transaction efficiency is lower. In Full Anonymity, the surplus for the sellers and transaction efficiency are at the lowest. However, our results suggest that platforms can benefit from Partial Anonymity policy where transacting parties have common affiliation such as workplace or school. Sellers earn a higher surplus in Partial Anonymity, and buyers benefit from alleviating quality uncertainty while transacting with their social networks. Consequentially, a partially anonymous marketplace can lead to higher transaction efficiency making a socially embedded marketplace a viable source for revenue generation for the platform.

Keywords: marketplace, information policy, uncertainty, social embeddedness, analytical model, experiment