Reputation represents one of the most pivotal assets of an online entrepreneur in marketplaces, particularly within a setting like that of the Darknet’s anonymous marketplaces. However, what would happen whenever this asset is undermined by a shock, i.e. bad reviews, or negative feedback?
A recently published paper studied how entrepreneurs on Darknet’s marketplaces react to negative feedback. We will take a look at the interesting results and conclusions presented via this study.
The study included data from multiple Darknet marketplaces, but mainly focused on the Agora marketplace, which operated between December 2013 and August 2015. The data used in the study was obtained from archive.org. The data included in the study involved information from around 90 Darknet marketplaces, with the primary focus on the drugs category which represents around 75% of all product listings on these anonymous marketplaces. The studied data included around 6.1 million feedbacks awarded to approximately 1,600 entrepreneurs.
Results and conclusions of the study:
The study revealed that both experienced and inexperienced vendors react to negative feedback, but rather differently. Analysis of the studied data revealed that inexperienced Darknet entrepreneurs are more likely to react to negative feedback by exiting the market, most probably because they do not expect to continue making profits. Nevertheless, those who choose to continue selling on the marketplace, negative feedback does not lead to a contraction or expansion of their trading operations, i.e. their number of product listings. Such behavior is mostly due to the fact that fewer experienced entrepreneurs are more or less close to their reservation income generated from selling drugs on Darknet marketplaces. They are not capable of sustaining a prolonged duration of less profitable trading operations. Nonetheless, if they continue to operate after receiving negative feedback, they usually lack the needed resources to expand their product listings, yet shrinking them will bring them closer to bankruptcy, which is also undesirable.
On the other hand, the reaction of experienced entrepreneurs to negative feedback is quite different. The most prominent observation is that experienced entrepreneurs are not likely to respond to negative feedback by exiting the marketplace. This is most probably due to the fact that experienced Darknet entrepreneurs consider their long history of transactions on these marketplaces as a valuable asset, and a basic feature that sets them apart from newcomers who are just beginning to list their products for sale.
As such, the prospect of giving up their long history of transactions by either exiting the marketplace or by creating a new account under a new pseudonym seems highly unattractive. The study found out that experienced Darknet entrepreneurs are likely to react to negative feedback by expanding their product listings, in an attempt to expand their portfolios. Arguably, this can be secondary to problemistic search and the indication that present trading activities are largely unsuccessful. Interestingly enough, oppositely to inexperienced Darknet entrepreneurs, this moves the focus of adjustment to the intensive margin rather than the extensive margin.
Value and contributions of the study:
This study represents one of the first studies to analyze the managerial responses of a special breed of online entrepreneurs, Darknet entrepreneurs selling illicit drugs. Results of the study show that their reaction to negative feedback follows somehow predictable patterns and that their plans seem sophisticated because they rely on the value of a reputational resource: their history of transactions on the marketplace.
This is the first study to examine the reputation system of Darknet marketplaces. The study also proves that an online reputation and feedback system works fine, even in an anonymous marketplace setting, such as those of Darknet marketplaces. This proves the notion that some online marketplaces can self-regulate themselves, even with the lack of enforceable and formal contracts, via operating a special form of reputation system.
The study contributes to the field of behavior secondary to performance feedback, i.e. the firm’s behavioral therapy. This is by far one of the first studies to prove that reactions can vary greatly as per the value of assets (online reputation in the setting of Darknet marketplaces). We concluded that transaction history and reputation can cause an entrepreneur’s reaction to shift entirely from exiting the market (for inexperienced entrepreneurs) to expanding product listings and boosting current operations (for experienced entrepreneurs).