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e-Reputation: Building Trust in Electronic Commerce

Professor of Law, Fordham Law School. Many thanks to the participants in the LSU Law School Symposium on Unifying Commercial Law and the Fordham Law School Legal Theory Workshop for their coments and encouragement.

Who would place a bid in an online auction in which a stranger, identified only by pseudonym, offers to sell an object based on a brief written description and a grainy digital photograph? Why would any set of strangers engage in commerce over the Internet, whether retail, wholesale or tag sale? If something goes wrong in the electronic transaction, legal redress may be problematic. Where e-commerce involves small dollar amounts or transaction partners in distant or foreign jurisdictions, breach is unlikely to be followed by litigation since litigation may be too time-consuming, expensive, or unpredictable.

The academic community has long understood that, while clearly articulated legal rules and predictable legal enforcement of those rules enhance commercial transactions, commerce can occur, and may even flourish, in their absence. Commercial norms can supplement commercial law,1 while verification institutions2 and non-legal sanctions3 supplement judicial enforcement of that law. Moreover, traders can manage the risks that underlie commercial transactions by acquiring information about others' reputation in the market,4 but "relying only on direct personal experience is both inefficient and perilous: inefficient, because any one individual will be limited in the number of exchange partners she or he has, and perilous, because one will discover untrustworthy partners only through hard experience."5As a result, markets have developed mechanisms6 for sharing and selling reputation information.7

In Reputation and Intermediaries in Electronic Commerce,8Clayton P. Gillette considers whether reputation intermediaries and reputation sanctions offer plausible substitutes for contractual enforcement in e-commerce,9 and focuses his attention on the performance of feedback forums like that provided by eBay, the largest online auction.10 In the end, he is skeptical that the eBay feedback forum can provide customers with a reliable means for transmitting accurate information about traders' commercial reputation and sanctioning those who do not engage in reasonable commercial conduct in online auctions.11 He argues that the usefulness of a reputation system is undermined by participants' limited capacities to verify the accuracy or inaccuracy of reputation information available over the Internet.12

Gillette's ambivalence about feedback forums' success stems from the fact that only a small fraction of online traders post negative or even neutral commentary with eBay. He suspects, not just that too little feedback is posted, but, more damning, that participants under- report their dissatisfaction with online auctions. He raises both theoretical and practical reasons why dissatisfied buyers and sellers would refrain from posting negative remarks more frequently than...

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