Online Reputation and the Regulation of Information Asymmetries in the Platform Economy

Abstract

In recent years, online rating and reputational mechanisms have become increasingly important in the regulation of behavior in the platform economy. Consumers tend to rely on online reviews to distinguish between service providers both in the business-to-consumer and the peer-to-peer economy. The European Commission and the Federal Trade Commission, as well as a strand of legal scholarship, have praised these online mechanisms for generating valuable information while reducing market failures and consumer risks. However, this position has overlooked evidence suggesting that the additional data provided by online reputation might not be able to address information asymmetries and manage risks due to the multiple shortcomings of existing online reputational mechanisms. In this article, I discuss the regulatory potential of online reputational feedback and offer a nuanced reflection on the traditional assumption that the availability of more information in the market reduces the need for public regulation. I suggest a co-regulatory framework for the regulation of online reputation that could help promote the transparency and trustworthiness of these informal enforcement mechanisms.