On the Prevalence of Online Trade among Strangers: A Game-Theoretic Explanation

Yong-Ju Lee
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Yong-Ju Lee: Samsung Research Institute of Finance

Korean Economic Review, 2011, vol. 27, 139-161

Abstract: Motivated by the prevalence of online trade among strangers through consumer-toconsumer transactions, we examine by random matching the theoretical possibility of a social norm of trust and reciprocity emerging among strangers in the infinitely repeated buyer-sender game. Players are completely anonymous and interact only at randomly determined times. Based on the study by Kandori (1992), we show that the social norm of trust and the reciprocation of trust can be sustained in a population of self-interested, anonymous strangers when trust and reciprocity are attached to the community as a whole. Sufficient conditions that support trust and reciprocity as a sequential equilibrium are provided.

Keywords: Infinitely Repeated Game; Random Matching; Contagious Strategy; Folk Theorem; Buyer-Sender Game; Sequential Equilibrium (search for similar items in EconPapers)
JEL-codes: C72 C73 D83 (search for similar items in EconPapers)
Date: 2011
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