Trust and Disintermediation: Evidence from an Online Freelance Marketplace

by Grace Gu and Feng Zhu
 
 

Overview — Intermediaries such as brokers, distributors, and agents all face a risk of disintermediation, when two sides circumvent the intermediary and thus avoid the intermediary’s fees. This study of a large online freelance marketplace finds that enhanced user trust increases this risk, alongside other contributing factors like being geographically near one another, having easily divisible jobs, and clients themselves having high ratings.

Author Abstract

As an intermediary improves trust between two sides of its market to facilitate matching and transactions, it faces an increased risk of disintermediation—with sufficient trust, the two sides may circumvent the intermediary to avoid the intermediary’s fees. We investigate the relationship between increased trust and disintermediation by leveraging a randomized control trial on a major online freelance marketplace. Our results show that enhanced trust increases the chance for hiring high-quality freelancers. When the trust level is sufficiently high, however, it also increases disintermediation, which offsets the revenue gains from the increase in hiring high-quality freelancers. We also identify heterogeneity across clients and freelancers in their tendencies to disintermediate.

Paper Information