The Generation and Development of Trust in the Sharing Economy: From the seller's perspective

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SAMINT-MILI 20053

Master’s Thesis 30 credits September 2020

The Generation and Development of Trust in the Sharing Economy

From the seller’s perspective Fei Shuyue

Master’s Programme in Industrial Management and Innovation

Masterprogram i industriell ledning och innovation

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Abstract

The Generation and Development of Trust in the Sharing Economy

Fei Shuyue

The sharing economy (SE) is a new business model that can optimize allocation of resources by enabling people share the idling assets through the online platform without the transformation of ownership. One of the important characteristics of SE is to build up interpersonal trust, which is the foundation of SE. However, trust is also the concern in SE. To know about trust in SE, this thesis attempts to explore the generation and development process of trust by understanding the origin of trust and the evaluation of the trustworthiness of the buyer from the seller’s perspective. Based on the existing trust-related theories and the qualitative research method, the sources of initial trust and the judging approaches of trust was investigated.

The study found that sellers’ trust towards buyers derives from inner disposition to trust. In addition, the assurance from SE platform and external regulation, and the familiarity of the transaction environment can also increase trust. In the development process of trust, first, information is gathered through different ways, and then sellers make judgment according to the evidence. By seeking signals of trust through the profile, the reputation system and the communication with the buyers, sellers tend to trust those who present the reliability in the interaction and those who have some similarity to them. As more and more information about the buyer gathered, trust will be weakened, strengthened, or interrupted depending on the trustworthiness perceived by the seller. Furthermore, this study

conceptualized initial trust based on the interdisciplinary model and then developed a trust-building model by revising the model in e-commerce. The results of this study make contributions to both managerial fields and academic fields by investigate trust in SE from the seller’s perspective, which has not been paid attention in previous researches. The importance for the seller to be reliable and the platforms to improve the assurance system has been highlighted in the past. This study provides the cognition of trust from a new perspective, aiming to emphasize that the efforts to increase trust in SE is not the responsibility of the sellers or the platforms. Instead, all the three parties, sellers, buyers and platforms should work together to build up trust in SE.

Keywords: the sharing economy, trust

Supervisor: David Sköld Subject reader: Per Fors Examiner: David Sköld SAMINT-MILI 20053

Printed by: Uppsala Universitet

Faculty of Science and Technology

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Ångströmlaboratoriet Lägerhyddsvägen 1 House 4, Level 0

Postal address:

Box 536 751 21 Uppsala Telephone:

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http://www.teknik.uu.se/student-en/

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Popular Science Summary

Currently, the popularization of the Internet and the development of technology make it possible for the sharing of globalized resources. As one of the business models that relates to resources sharing, the sharing economy (SE) plays an important role in resolving excess production capacity, promoting the flow of resources, optimizing the allocation of resources and expanding the effective supply. SE means people share the idling assets on the online platform without the transformation of ownership. SE platforms are companies that specialize in providing online services that connects sellers and buyers.

With the aid of SE platforms, sellers display their products or services and buyers choose what they want according to their preferences.

The online environment enables people to share their idling assets with those who need them, which means interaction with strangers is inevitable in SE. Therefore, trust is one of the concerns regarding to SE. Trust, which is the antecedent and the base of SE, bringing significant challenges to SE. Both product or service providers (which is also called “sellers” in the thesis) and buyers care about the behavior of the other party, hoping that the information presented are authentic. From the sellers’ perspective, they meet new buyers in most of cases. Since the seller has no prior knowledge about the buyer, there is uncertainty and risk in the transaction. In comparison with traditional e-commerce in which sellers accept the order from buyers and sell commodities without any consideration, the trustworthiness of buyers influences the decision of the seller in SE.

Based on the above background of SE, this study aims to explore the generation of trust and the development process of trust. Specifically, firstly, the origin of initial trust was investigated to know about the reason for sellers’ trust in the situation that unfamiliar buyers are always involved. Secondly, how the sellers judge the trustworthiness of buyers was examined. Lastly, based on the first and the second question, the development process of trust was explored to explain the formation of trust in SE.

This study is based on 14 qualitative interviews and guided by trust-related theories. The results of this study suggest that the trust relationship among stranger in SE originates from inner propensity and trust towards the platform. Familiarly of the transaction environment and regulation protection can also increase trust. The trust relationship then moves to the next stage that sellers may seek information in different ways (e.g. profile, feedback from others, communication) to make sure the buyer is trustworthy.

Sellers make subjective judgments after accumulating some evidence of trust and then the trust relationship will be strengthened, weakened or interrupted based on the signals and clues of trust.

The results of this study contribute to the existing research by developing a new model of trust-building in SE, which can shed light on future study of qualitative research about trust in SE. The aspects that have been studied regarding to the generation of trust and the judgment of trust can be further investigated based on different culture background or specific services sectors in SE. In addition, this study is important for the participants in SE (sellers, buyers and platforms) by arising their attention from the seller’s perspective. Previous researches about trust in SE have always focused on how to increase and maintain trust by supervising the platform and regulating the behavior of the seller, but this study implicates that buyers’ behavior can also affect seller’s trust towards the buyer and thus influence the decision-making of the seller. In all, to build up a trustworthy environment in SE, sellers, buyers and platforms should work together and overcome the gap among the three parties.

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Acknowledgments

This thesis was conducted in Uppsala University with the support from the master programme in Industrial Management and Innovation.

First of all, I’d like to express my gratitude to my subject reader, Per Fors, and our supervisor and examinor, David Sköld, for the helpful comments throughout the whole process of the degree project.

The constructive opinions that you have given is important in revising this thesis, and the feedback from you always guided me along the process of this research. Moreover, the guidance regarding to academic writing and the structure of the thesis helped a lot in improving this thesis.

Second, I want to thank those who participated in my interviews for spending time to share their ideas and thoughts. The information that they provided constituded the data which is one of the key components in this thesis. Their collaboration helped a lot in the data collection process.

Third, I appreciated suggestions given by our classmates in the peer-review seminars. They took extra times to read my thesis and provide their advice. In the seminars, we discussed our thesis together and learned from one another.

Lastly, I’d like to express my appretiation to all staff in the master programme in Industrial Management and Innovation. I’ve leared a lot in the two-year study and thanks to the knowledge that I’ve learned and the support collaboration from different department, I was able to finish this master thesis.

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List of Figures

Figure 1. Constructs of trust ... 13

Figure 2. The model of the formation of initial trust... 17

Figure 3. Online trust-building model ... 20

Figure 4. The model of trust development lifecycle ... 20

Figure 5. The model of trust development ... 21

Figure 6. Trust lifecycle based on the buyers perchase behavior ... 21

Figure 7. Intergration of the theories ... 25

Figure 8. Reason for initial trust ... 35

Figure 9. The transform of trust ... 39

Figure 10. Cognitive process ... 48

Figure 11. The information accumulation process ... 54

Figure 12. The model of trust-building in SE ... 70

List of Tables

Table 1. The differences between the sharing economy and e-commerce ... 7

Table 2. The definition of trust ... 9

Table 3. The information of the interviewees ... 31

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Abbreviations

B2C Business-to-consumer

C2C Consumer-to-consumer

E-commerce Electric commerce

P2P Peer-to-peer

SE The sharing economy

SET Social exchange theory

TRA The Theory of Reasoned Action

URT Uncertainty Reduction Theory

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1 Introduction

This section is going to introduce the background of this study and illustrate the purpose and the aim of this thesis.

1.1 Background

The term Sharing Economy (SE) refers to “collaborative consumption made by the activities of sharing, exchanging, and rental of resources without owning the goods” (Lessig, 2008, pp. 143). SE refers to activities in which the utilization of the resources is maximized by sharing. SE originates from sharing idling resources in small communities where people can dispose their excess goods by selling them or exchange with others. The original aim of this activity was to utilize the assets as fully as possible instead of making profits (Sung, Kim & Lee, 2018). The initial idea of sharing and accessing for maximization of utilization and the nature of non-consumption make it possible to link the sharing activity to sustainability. As the sharing activity developed into a business model and profits are involved in the activity, SE still embrace the efficient utilization of resources. That is, SE can save resources by promoting the utilization and accessibility to idling assets and services. In the context of SE, participants share goods instead of own individually, positively affecting sustainability and thus resource depletion caused by overconsumption can be reduced. The prior researches foresaw the potential of SE and considered it as the solution to the transition from consumption to sustainability. Furthermore, the researchers addressed that a potential pathway to sustainability is SE, which changes the traditional business models and produce social effects as well as environmental benefits (Cheng et al., 2020).

Researches have proved that carbon emissions can be significantly reduced by some SE activities (Martin, Shaheen & Lidicker, 2010).

In recent years, people’s attitudes towards consumption has changed a lot as they gain more knowledge about social development and concern more about ecological balance. With the development of information and communication technology (ICT), SE is becoming an appealing way of consumption nowadays. The shared objects can be tangible commodities such as household appliances, houses and automobiles, and intangible assets such as delivery, cleaning and handyman work can also be shared.

Such an emerging phenomenon is promoted by the diffusion of internet communities and social commerce (Hamari, Sjöklint & Ukkonen, 2016). With the support of online platform, the sharing economy can share goods and services through activities such as swapping, renting, or trading.

Considering the potential benefits to economy and environment, it is estimated that the rise of sharing economy would make a significant change to the existing society, influencing both practitioners and policy makers (EU Environment, 2013). Despite more and more people is realizing the importance of sharing economy and the increasing number of researches focusing on this area, many aspects remain to be further studied. How sharing economy could become more widespread is still a problem.

Now the typical goods in sharing economy are vehicles and homes (Peterson & Simkins, 2019). Take these two goods as an example, in this kind of transaction, participants are involved with complete strangers. In other words, individuals place their trust in unknown people, and users face high uncertainty.

Therefore, trust is an important factor in sharing economy. Trust is defined as “a psychological state comprising the intention to accept vulnerability based upon positive expectations of the intentions or behavior of another” (Lee et al, 2018). It is believed that the disposition of trust would influence consumers choice when they try to engage in sharing economy (Lee et al, 2018). Online review system is the most common way for users to perceive trust in sharing economy. The comments and grades from the previous users could be useful for prospective users. Hence, trust issues in SE has attracted the interest from many researchers.

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1.2 Problematization 1.2.1 Problem statement

Unlike traditional trust relationship in which there are only two parties, respectively the trustor and the trustee, the platform providers (which means SE companies or organizations that provide SE service) also is involved in most of the relationship associated with SE (Hawlitschek, 2016b). Thus, the transaction is not the conventional dyadic relationship, which means that there are two parties, sellers (which are the ones who provide idling assets or certain service to others) and buyers (which are the ones who utilize the service or the products shared by sellers), in the relationship. Instead, the transaction happens in a “triad of relationships (Möhlmann, 2016)” where not only buyers and sellers are involved, but also the platform is involved, and it works as the third party to mediate the relationship.

Trust is a challenge that SE faces. To shape customer experiences, platform providers (which is called

“platforms” in the following part of this thesis) have systems to collect the users’ data and control the users’ behavior. The systems could protect the buyer’s right. However, they can also bring trouble to the sellers. Sellers are vulnerable to the buyers under the systems. Spiteful comments given by vicious buyers might hit the reputation of the sellers. And the algorithms and applications can only be accessed by the employees inside the company. Thus, the users in the platform are not able to know if they were deceived by the predefined systems and therefore negatively influence their business.

The current study indicated that trust is one of the determinants when people decide whether to participate in SE or not. From buyers’ perspective, trust towards the platform and the seller influences their decision and this factor has forced SE platforms to take some action to supervise the seller. However, Hawlitschek (2016a) stated that in SE, trust is multifaceted construct and it involves much more complexity than traditional Business-to-Consumer (B2C) electric commerce (e-commerce). Trust perception from the sellers’ perspective should not be ignored. In peer-to-peer (P2P) transactions, mutual trust should be stressed out. Since the threshould in P2P transactions is not as high as that in B2C market, both the two parties face trust issues when they engage in the exchange. And trust towards the mechanism of the platform could also influence the experience when sellers provide the service or sell products to their buyers.

The reason why the project targets at investigation the trust problem from the sellers’ perspective is that both the sellers and buyers are vulnerable to each other. On one hand, in the previous research, there is heavy emphasis on buyers’ trust towards sellers (ter Huurne et al., 2017). It shows the concerns of academic research. This aspect has always been studied from the buyer’s perspective by investigate the buyer’s opinions and attitudes. However, to increase buyers’ trust towards the sellers, the challenge that the sellers faced, and their view of trust should also be explored. Most of the current research on trust in SE has focused on the SE company or the buyers, leaving behind the sellers. On the other hand, research on trust belief towards the buyers from sellers’ perspective indicated buyers focused on the factors that influence seller’s trust towards buyers, such as the seller’s risk propensity, general disposition to trust, and previous experience. Based on the application of familiarity and disposition to trust, Mittendorf (2016) stated that in Airbnb, trust in renters influenced on the hosts' intentions. However, besides familiarity and disposition to trust, there are other antecedents that worth to be considered in further research. In addition, SE has some similarity with e-commerce, but due to the complexity of the relationship among three different parties (sellers, buyers and platforms), trust in the platform is far from gaining trust from the sellers. Trust in certain individuals has a significant impact on the seller’s experience in SE.

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1.2.2 Research purpose and research questions

From the literature review, it is found that most of the extant research has investigated trust in sharing economy by using quantitative methods and focusing on a specific area, such as Airbnb or Uber. Only a few of the existing research using qualitative methods to conceptualize trust in sharing economy. This thesis will combine both theory and empirics and elaborate the research questions from three aspects:

the trust towards the buyer, the trust towards the seller, and the trust towards the platform.

The study is intended to contribute to the limited existing research by explaining empirical data with the theoretical framework. Based on the results, the study is to improve the existing trust-building models.

The research from the seller’s perspective enables the buyers to reflect on their behaviors. In the previous researches, buyers’ views about trust has been emphasized to a large extent, forcing the sellers to be self- regulated all the time to attract potential buyers. However, since both the buyer and the seller are individual vendors and the role of the buyers and the sellers can be exchanged in SE, the focus on buyers merely is not enough for the promotion of SE activities.

The aim of the study is to investigate the formation and development of trust from the seller’s perspective.

SE platforms can refine their strategies, and the trust gap between buyers and sellers could be overcome.

In order to accomplish the aim of the study, three sub research questions are purposed as follows.

(1) What are the reasons for the initial trust to manifest itself between buyers and sellers?

(2) What methods do sellers use to judge the trustworthiness of the buyer?

(3) How does trust develop processually between buyers and sellers?

Firstly, this study is going to explore the source of trust, which represents the origin of trust without any interaction history, at the beginning of a new relationship. This is the start of trust at the initial stage of trust development. Specific trust-related problems sellers face when providing the services to the buyers was examined to be the starting point of the study. By identifying the potential risks in SE, the importance of trust is highlighted. The next research question regards to how sellers believe that the buyers will not behave negatively. Specifically, the approaches that the sellers use to increase their knowledge about the buyers to reduce uncertainty in the transaction process will be identified. Based on the above questions, the third step is to explore the development process of trust in SE.

1.3 Structure of the thesis

This thesis first starts from the literature review to provide the background of SE and the overview of trust. The related research that can shed light on this study has been reviewed. Then the explains the methodology, of this thesis is presented, including the research method, the process of data collection and the analysis of data. Based on the findings, the analysis is made and then the discussion related to the aim of this study is performed. At the end of this thesis, the conclusion is made, and the research questions are answered.

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2 Literature Review

The following section presents a review of the related research field in regard to trust and SE. It aims to provide insights on the development of SE, the current research about trust, as well as the link between trust and SE.

2.1 An overview of SE

The behavior of sharing has been existing for a long time. In the past, sharing happened among people who knew each other (Belk, 2014). The origin of the sharing economy was first believed to be a non- profit initiative to promote interpersonal relationship and then, as participants shared parts of fee in the activities as compensate for providers, the sharing economy have developed into a huge business (Belk, 2014).Nowadays, Internet broadens the social circles and the emerging peer-to-peer marketplace make it possible for people to interact with strangers (ter Huurne et al, 2017). The parties involved in the sharing activity evolved from acquaintances, to people who have not met but previously communicated, and then to strangers who don't know each other. The relationship between the two sides in sharing activity has changed from actual social bond, to spiritual bond based on common interests and belief, and then to purely the relationship of demand and supply. In this evolvement, there is more and more uncertainty. In addition, more products and services, such as accommodation, rides, and tools, are available through online platforms, bringing more alternatives to the behavior of sharing (Peterson &

Simkins, 2019).

However, Hawlitschek et al (2016) argued that in the guise of the sharing economy, many activities that have participated in the sharing economy don’t reveal the real meaning of “sharing”. Instead, these activities are economy behaviors among which renting is regarded as “pseudo-sharing” (Belk, 2014) because economic benefits take a large proportion in the activity and make it a business relationship rather than pure communal sharing with no expectation of reciprocity (Albinsson et al, 2019). Therefore, what people take for granted, such as rentals, social networking sites, online barter sites, are not real sharing. Such debate stands on the opposite side of Botsman and Rogers (2010) as they ignored the large proportion of economic motives in some of the sharing activities.

SE is different from traditional e-commerce because of the social attribute of the user's consumption behavior. SE is a new way for people to gain recognition and reputation. And SE is regarded as an opportunity to meet various people and promote the interpersonal social relationship by dissolve the interpersonal boundary (Botsman and Rogers 2010; Lamberton and Rose, 2012; Schor and Fitzmaurice, 2014; Belk, 2014).

Kong et al (2019) summarized that there are three parties, including sellers, service enablers and buyers in SE. Sellers provide services or products to buyers. In this way, they can obtain (monetary of non- monetary) rewards in return, and at the same time, their asset utilization can be optimized. The role of the service enabler is a supporter that provide the online market environment for the transaction. All the three parties are based on digital platform that can connect buyers, sellers and service enablers. The three parties can interact with one another in real time on the platform. Compared to traditional e-commerce, communication and social support take a more important role, especially in those unstandardized service (e.g. vacation service or housing rental). With social comments and reviews from the previous users, buyers can enjoy the information search process.

2.1.1 Types and business model of SE

Botsman and Rogers (2010) divided the activities in the sharing economy into three categories: product and service systems (where people can share or rent others’ goods), social wealth redistribution systems

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(where people who need the product can get it from those who don’t need it), and collaborative lifestyles (where intangible assets can be shared by group of people who have common interests). All the three types of activities showing that the most obvious effects of the sharing economy are maximizing the usage value of products, reusing the old products, and the strong interpersonal relationships brought by the interactions with others (Botsman & Rogers, 2010).

As a new business model, SE includes many aspects such as sharing consumption, sharing production, sharing finance, sharing study. There are four types of SE (Botsman & Rogers, 2010; Stephany, 2015).

(1) Individuals share or rent their personal products or services. (2) People exchange second-hand products through second-hand market. (3) Intangible assets, such as specialties, time and knowledge are provided. (4) Users share their daily life in social media (e.g. Twitter, Facebook, etc.) and it can result in collaboration consumption such as car-pooling among friends or the sharing of certain equipment.

According to Stephany (2015), there are two marketplaces regarding to SE: B2C and P2P. In the B2C marketplace, the company buys and owns the assets, and it rents them to buyers. In the P2P business, individuals can provide their products/services to other peers. In this market, the inventory has already existed, while in B2C market, providing the service might result in more inventory. And this is one of the reasons for “rebound effect” brought by SE.

The seller in B2C business is usually more professional than those in P2P market. But the advantage of in P2P market is that the flexibility in the operation of business. The individual sellers are called “micro- entrepreneurs”, and they are creating increasing benefits to SE.

P2P business in SE differs from that traditional market significantly. In traditional market, P2P business model means selling products and transfer of the ownership (Cusumano, 2015), while in SE, the sharing of usage is more important. Since the delivery could be products or intangible services, it is hard to know the quality before actual using it. Thus, what the potential risks that users in SE face are not only the loss of property, but also personal safety and other risks. Therefore, SE require the parties have deep understanding of one another and then build up a degree of trust. From the perspective of inner demand of SE, trust is the base of SE, idling capacity is the antecedents of SE, user experience is the core of SE, and the target of SE is to maximize the utilization of resources.

2.1.2 Drivers and impediments of SE

Researchers have studied the drivers and impediments of SE. Botsman and Rogers (2010) believed that most of the private asset has not been fully used and there is huge amount of idling capacity everywhere.

The core of SE is to redistribute the usage value of the product, and the presence of the Internet accomplishes the match of demand and supply. They also argued that individuals should trust strangers when they participate in SE. Technology (e.g. the development of the Internet, mobile devices, and payment system), society (e.g. the demand for shared goods and services due to high density of population, the desire for social community), the concern for environment (e.g. reducing the pressure of natural resources on the planet and promoting sustainable consumption) and economic benefits (e.g. get extra income by underutilized assets and increasing the flexibility of personal finance) are the four main drivers of SE (Qwyang, 2013; Nadler et al, 2014; Stephany, 2015; Böcker & Meelen, 2017).

Nadler et al. (2014) argued that laws and regulations, the difficulty of measuring the economic behavior in SE, and the imbalance of demand and supply are four main impediments of SE. Weber (2015) stated that the key obstacle to SE is that people worry about the damage behavior of the other party, and the concern is based on the judgment of moral hazard. In addition, Thiere et al. (2016) identified that information asymmetry is another concern in SE.

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Information asymmetry means in a certain relationship, one party has more or better information compared to the other (Akerlof, 1970). It is a common phenomenon in management field (Bergh et al, 2019). In the context of SE, different parties know different things. No matter how detailed description has been provided, the information that the other party has got is always less than what the owner knows.

That is, information is unequally distributed in the market because of the actors store various knowledge (Schmidt and Keil, 2013). To acquire the information they lacked, the parties make efforts to seek as much information as possible, increasing the cost of transaction, especially the cost of information search (Thiere et al, 2016).

Most transaction in SE is conducted online, which brings advantages and disadvantages in solving information asymmetry. On the one hand, in most of SE platform, basic information about the product/service has been provided, and for some service, the introduction to the seller/the buyer has also been provided. In this way, both the parties can get the first knowledge about the other even before doing any extra research. If they want to gain more information about each other, they can spend more time in searching detailed information by using online search engine or chat with each other. All these efforts have no constraints of time and space, and thus the cost is not too high. On the other hand, however, what has always been stressed is that the increase of information asymmetry brought by SE. There are three main reasons (Thiere et al, 2016).

(1) The information and the product/service are separated.

As buyers, what they can know is the information from the images and text through the web page, and sometimes they get from the extra communication with sellers. But they are unable to touch or feel the product/service. Similar to buyers, since it is impossible for sellers to have face-to-face interaction with buyers, the only way that sellers identify the reliability of buyers is the information they can get from the web page and through the virtual communication. Therefore, they are often suspicious of the reliability of the information, which lies in the consistency with the given statement and the real product/service. Considering that some sellers would attract buyers by fake information, and some buyers would behave badly, sellers and buyer would sometimes decide not to participate in the exchange.

(2) The characteristic of the trading party (the buyer and the seller) is uncertain.

Most transaction of SE is one-time behavior, which means sellers and buyers don’t need to make efforts to maintain their relationship. Therefore, it is possible for sellers to attract buyers by deception or concealing the real quality of the product/service. As for the buyers, they are also likely to cover up some of the bad habits to win trust from the seller. In addition, since the barriers to entrance is low and the parties can exit the platform at any time, the possibility of deception is increased. Virtual communication without physical presence also reduce cost of untrustworthy behavior.

(3) It is difficult to investigate the legal responsibility.

By using the internet as a marketing channel, buyers and sellers can complete the transaction anytime and anywhere. But since the transaction in SE is lied in the gray zone in the surveillance, it is hard to identify the responsibility. All these factors increase the difficulty to claims and reduce the threaten from the laws.

2.2 SE and e-commerce

Based on the literature review, Yang et al. (2019) identified the differences between e-commerce and the sharing economy (see Table 1). The first characteristic of the sharing economy is that the exchange happens between peers (Hamari, Sjöklint, Ukkonen, 2016; Belk, 2010). Thus, personal nature is concerned to diminish risks and uncertainty in the transaction. In the e-commerce context, the transaction happens between the traditional venders and buyers. This leads to the difference in the role of the seller

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as well as the focus in the business. Thereby, the sharing economy is relationship-oriented, and e- commerce is process-oriented.

SE E-commerce

The way of exchange Peer to peer Traditional buyers and sellers

The role of the seller One role: owner Two roles: owner and service/product provider Focus Relationship among peers Economic transactions

Orientation Relationship-oriented Process-oriented Concerns about personal

nature Yes No

Table 1. The differences between the sharing economy and e-commerce Adapted from: Yang et al., 2019; Hamari, Sjöklint, Ukkonen, 2016; Belk, 2010

The table indicates that thought SE has some similarities to e-commerce, the differences between the two business models cannot be ignored. Therefore, the established research based on the e-commerce environment cannot be adopted to SE environment. However, since the significant similarity of e- commerce and SE is that they both supported by the online technique, the theories and models that have been developed for trust in e-commerce can be adapted according to the characteristics of SE and facilitates the study of SE.

2.3 Trust

Trust has been studied in many disciplines and in different research field, trust is viewed in various perspective. For psychologists, trust is a personal trait; for sociologists, trust is related to social norms;

and for economics, trust is a factor of economic choice mechanism (Lewicki & Bunker, 1995).

In the research of trust, McKnight et al. (1998) identified five research streams: first-hand knowledge- based trust, calculative-based trust, personality-based trust, cognition-based trust, and institution-based trust. Among the five streams, first-hand knowledge-based trust was excluded in the context of initial relationships because such relationships mean parties meet or interact for the first time without any interaction history. The second-hand knowledge was regarded as a categorization process which was a sub-category of cognitive process. Further, they suggested trust concept can be broken into two constructs: trusting intention and trusting beliefs because these two factors are highly related to each other. Furthermore, they proposed that trust forms because of disposition to trust, institution-based trust and two cognitive processes.

Later, McKnight et al. (2000) noted that it was necessary for researchers to agree on consistent trust definitions, and thus a trust typology was suggested. By analyzing 65 articles which provided definitions of trust, they improved the previous model (McKnight, Cummings & Chervany, 1998) by identified subconstructs of trusting intention, and finally created an interdisciplinary model of trust types. In addition, they defined constructs and subconstructs in the model. With the well-defined terms, all the subconstructs and constructs are measurable.

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2.3.1 Definition of trust

According to McKnight & Chervany (2001), it is impossible to limit the cognition of trust in a certain disciplinary bound because of the massive meanings it conveys and the different views of various intellectual disciplines. Therefore, up till now there is no unitary concept of trust.

In the field of psychology field, most researchers defined trust from the psychological perspective and the behavioral perspective. From the perspective of psychology, trust is defined as a kind of belief or feeling rooted in personal emotions. Based on the individual's life experience and the understanding of human nature, the overall expectation of the feeling of trust is formed. It is psychological reactions or psychological traits formed in a particular social environment (Mayer, Davis & Schoorman, 1995). From the perspective of human behavior, trust is regarded as the individual’s reaction to a specific situation (Deutsch, 1958).

In the field of economics, trust is considered a risky behavior. Economic researchers associate trust with risk, arguing that trust is the measurement of the risks and the cost-benefit analysis is calculated by the rational actor. Thus, trust in the economic field is also called calculative-based trust. (Sable, 1993) In the field of sociology, trust is viewed from moral perspective, meaning the expectation of members' loyalty and cooperative behavior. It is based on the shared norm value and the role of the members.

(Quddus, Goldsby & Farooque, 2000)

In the field of management, researchers focus on interpersonal trust in organizations. Trust is viewed as a phenomenon of mutual trust between groups and individuals. The researchers think trust can improve the degree of customer satisfaction, reduce organizational risks, reduce transaction costs, and it is an effective way to control the organization (Rousseau et al., 1998). Table 2 lists some of the definition.

Although the definition of trust is different, the interpretation of trust from various perspectives can shed light on the topic of trust and the similarities of the concepts can be identified.

1. There is the trustor and the trustee in the relationship of trust. The trustor is the party that trust the other party, and the trustee is the party that is trusted by the trustor.

2. Trust is based on individual subjectivity. Since the individuals have different cognition towards the environment, the effects of emotional factors and situational factors is various, resulting dynamic trust among individuals. Therefore, trust is changing because of the subjectivity.

3. There is risk and uncertainty in the trust relationship. Trust can stimulate the happen of certain behavior which are uncertain. The uncertainty of the behavior is mainly caused by information asymmetry. The lack of information may result in unexpected outcomes which will bring risk to the trustor.

4. Dependency is one element of trust. The belief that the other party can be relied on force the formation of trust relationship. Only with the willingness to depend on each other can the trustor predict that the trustee will act with goodwill in unfamiliar situations (Kim & Kim, 2005).

Author Definition of trust

Rotter (1971) An expectancy held by a party that the word, promise, verbal, or written statement of another party can be relied on.

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9 Pearce (1974)

A perception based on the evaluation of knowledge and competence of another person, and the likelihood of preventing the happening of unacceptably negative incidents.

Schurr and Ozanne (1985)

In an exchange relationship, one believes that the other party is reliable and will fulfill the promise.

Lewicki &

Bunker (1995)

One party have the positive belief and expectancy of another party’s motivation and behavior even though there might be risk.

Mayer, Davis &

Schoorman (1995)

Even though there might be a loss, the trustor is willing to give up the ability to control or supervise the trustee based on the expectation that the trustee will perform as the trustor expected.

Rousseau (1998)

The willingness to accept vulnerability supported by positive assumption of the other party.

Table 2. The definition of trust

The presence of risk and uncertainty is the core of trust. In this case, the trustor perceives dependency and reliability towards the trustee (Gefen, Karahanna & Straub, 2003). Trust means the willingness to accept risks brought by trust (Sabel, 1993). That is, it makes no sense if everything is certain without any risk.

2.3.2 Trust in e-commerce

Since SE is a new business phenomenon, the research about trust in SE is limited. Hence, considering that SE and e-commerce have some similarities, researches about trust in e-commerce has been involved in the literature review so that the limitation of existing research about trust in SE can be supplemented.

At first, the research of trust in the e-commerce context focused on traditional B2C market as trust was known as an important factor to rely on the online vendor from the buyer’s perspective (McKnight and Chervany, 2001). The concern of trust in e-commerce consists of many aspects, such as website quality, privacy, and the quality of the product or the service. One of the reasons for the concerns is that the lack of laws, official standards, or regulated supervision and inspections (Avital et al., 2015). Later, as the rise of Consumer-to-Consumer (C2C) business in e-commerce, an increasing number of researches was conducted based on the trust in the context of C2C virtual communities (Lu, 2010).

Moreover, the emphasis on trust in the e-commerce has drawn the attention of many researchers. Due to uncertainty about the vendor, buyers perceive risks in the online context (Yang et al., 2019). In the online environment, it is impossible for buyers to check the product or inspect the vendor, which is the assurance in the decision of purchase behavior in brick-and-mortar stores. Therefore, some consumers are not willing to engage in e-commerce because gauging the trustworthiness of e-vendor is more difficult in most situations (Grazioli & Jarvenpaa, 2000). Consequently, lack of trust is considered as an impediment to the development of e-commerce (McKnight, Choudhury & Kacmar, 2002).

McKnight et al. (1998) stated that, to reduce uncertainty in unfamiliar circumstances, consumers always try to seek reliable information from exposed source. Additionally, considering that attracting potential consumers in the initial time frame is critical to the success of the business, McKnight et al. (2002) identified the influential factors of trust in the online environment. They put forward three determinants, which are structural assurance of the website, perceived site quality from the buyer’s perspective and the seller’s reputation based on the buyer’s cognition. Among the three factors, reputation and site quality are more important than structural assurance in trust in vendor. Furthermore, information

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credibility, user experience, and customer satisfaction are three additional factors that were supplemented by Filieri et al. (2015).

According to the literature review, reputation, which is one of the decisive factors of trust, is the focus of many e-commerce researches. Emphasis on reputation in e-commerce has been mentioned a lot.

Online reputation system is a mechanism used to support trust evaluation (Wang & Emurian, 2005). In the online environment, sellers and buyers are separated by distance, and a lack of trust for both the seller and the buyer is caused by information asymmetry (Yoon and Occeña, 2015). This issue can be mitigated by the reputation system (Kauffman and Wood, 2000). Such an informal communication channel is essential in the information gathering process when the product/service is not easy to assess (Granovetter, 1973).

In commercial process, personal experience and social feedback influence the formation of trust.

Personal experience is referred to direct trust, which means the trust based on the individuals’ knowledge and direct experience got from previous interaction, reflecting the subjective view of individuals. Social feedback is referred to reputation. It is the analysis based on gathering others’ opinion (Kracher &

Corritore, 2005). Obviously, reputation is a part of the trust, especially in the online environment.

In the context of e-commerce, the reputation score of the seller affects how easily the product can be sold, and even how high the price can be. With the reputation system, buyer’s satisfaction and experience can be increased because the possibility of fraud is decreased. According to Granovetter (1973), the level of trust can be influenced by other people. Drawing on social network theory, trust can be transmitted from one to another (Sih et al., 2009). Therefore, the description from previous buyers can be used for other guests to evaluate the items.

Detailed textual reviews provide specific information to future buyers and sellers, while even simple rating system can also select users. Considering time-consumption and complexity in writing textual reviews, extensive rating system (e.g. points or stars) are employed in some services in which instant feedback right after the service is important. Buyers with low ratings might take the risk of being not to be matched with the same seller, and sellers with low ratings might be deactivated. Furthermore, negative feedback indicating poor behaviors might result in penalties (Thierer, 2016). In this case, the reputation systems perform as a regulatory role (Zloteanu, 2018).

In order to build trust, sellers should establish a good reputation (Jones and Leonard, 2008). Unlike self- representation, which is driven by one’s own initiative and all the information is provided by oneself, the reputation of the seller formed by the feedback from the previous buyers. The reputation is determined by comments from other people. In e-commerce, sellers’ reputation comes from reviews and ratings from previous buyers. Buyer’s experience of the service and their perception of product quality decide the gradings and how they describe in the comments. Further, the feedback given by previous buyers can influence the decision of latter buyers (Beales, 1981).

In all, reputation is the aggregate representation of the user (Zloteanu, 2018). By summarizing experience and behavior, participants with poor history record can be screened, leaving well-behaved ones in the market and giving them more opportunities to make more transactions in the future (Thierer, 2016).

2.3.3 Trust in SE

The sharing economy, as a P2P platform, has created a decentralized and segregated system that encourages trust between strangers. Such kind of transparent community forces people to trust those who never met them before (Botsman & Rogers, 2010). As a fundamental element in the sharing

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economy, trust involves more risks compared to the only monetary loss in the traditional e-commerce market (Hawlitschek, 2016). Prior researches suggested uncertainty is regarded as the major risk considering the personal safety and identification of the sharing partners.

As mentioned in Chapter 2.3.2, trust is important in e-commerce. Similarly, following the research agenda of Gefen et al. (2008), Hawlitschek et al. (2016) studied how trust influences users' intentions to transact on the sharing economy platforms. In SE, the relationship between buyers and sellers is similar to C2C market in e-commerce. However, it is much more complex than traditional markets. Participantes in SE often interact with multiple parties. In addition to the seller as in the traditional market, the online platform which acts as a broker and mediator is another party that the buyer might interact with (Hawlitschek et al., 2016). Both these three parties should be trustworthy for the whole process to operate in an organized way.

What makes trust in SE is similar to trust in e-commerce is that researches also showed that reputation system is regarded as the valuable commodity within trust-building process among strangers in SE (Zloteanu, 2018). The feedback based on reviews from others is the most powerful parts in the decision- making process in the situation where people are not familiar with one another. The two-way reputation system can protect both buyers and sellers by reducing transaction-related risks. For accommodation sharing service (e.g. Airbnb, HomeExchange) which entails service quality and detailed information, a more complex reputation combining both ratings and written feedback is required. Despite the type of reputation system, the users will be selected by the platform based on the feedback. In addition, the reputation system in SE platforms enables sellers and buyer can decide whom they would like to interact by themselves. They can make the decision voluntarily. That is, sellers and buyers can decide whether to accept each other in the transaction. The two-way selection mechanism can generate more desired outcomes.

The rise of the importance of trust has drawn the attention of researchers in the domain of the study of the sharing economy. A variety of methodologies has been applied to the previous studies to investigate trust in the sharing economy, among which survey-based research is the most common approach. Such methods have contributed valuable results to this field. Some of the previous research studied about special areas, among which Uber and Airbnb are the two most common platforms, while other researches were performed in the more general context such as e-commerce and C2C commerce.

With the benefits brought by the sharing economy, more and more researchers dig their studies into the drivers of people’s participation of the sharing economy as well as the impediments for those who are not willing to join. Overall, two major drivers for people’s engagement in the sharing economy are the economic factor (to save money or earn money) and the social factor. Practical benefits, such as saving money (for the consumers), earning money (for the providers) and establishing interpersonal relationship and experience local culture and life, brought by the sharing economy is mostly valued by users.

(Botsman & Rogers, 2010; Stephany, 2015). In addition, the sharing economy is considered as the sustainable consumption because by using the idling capacity of the product, we people, who consume most in the planet, will consume less than before (Stephany, 2015).

Barriers to the sharing economy has also drawn the attention of many researchers as the popularization of the sharing economy. Tussyadiah (2015) identified the underlying reasons for travelers not using sharing accommodation. Three factors were concluded, namely, lack of trust, lack of efficacy and lack of economic benefits. In the study of Hawlitschek et al (2016), trust, privacy, process risk and quality are the main concerns among the users in the sharing economy. In the research of collaborative consumption, Owyang (2013) suggested that inadequate supervision, weak regulation regarding to reputation and standard, protest from the existing business, and lack of trust are the challenges in the

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sharing economy. Perceived utility is another barrier (Tussyadiah, 2015). the sharing economy attracted consumers because of the low price. If consumers worry receiving products or services with poor quality, they would consider it not worth to make effort. Furthermore, in the context of the sharing economy, information and communication technology (ICT), as the central role of the business model, has brought much more complexities (Keymolen, 2013). Trust relationship extend to technology besides the users.

Without ITC, trust is always related to interpersonal relationship between sellers and buyers. The involvement of ITC in the business implies technology trust could also be a challenge in the sharing economy because the deterrent of the sharing economy can be rooted from trust relations between users and technology (Tussyadiah, 2015).

Gefen et al. (2008) proposed a research agenda for trust in online environment. They noted that longitudinal nature is worth to study. On the one hand, trust develops gradually over time (McKnight, Cummings & Chervany, 1998). In other word, time and historical interaction is required to form high level of trust (McKnight, Cummings & Chervany, 1998). On the other hand, unlike experienced users who make the decision based on perceived usefulness, new users often rely on initial trust if they tend to participate in such kind of interaction (Gefen, Karahanna and Straub, 2003). That is, the importance of trust decreases as the experience increases. Therefore, Gefen et al. (2008) suggested that further research could explore time effects on trust. However, there is only a few researches about longitudinal influence on behavioral outcomes even though the suggestion had been proposed.

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3 Theoretical framework

To understand trust in SE, the following four existing theories, namely trust-related theory, Social Exchange Theory (SET), Uncertainty Reduction Theory (URT), and self-presentation, have been chosen to draw inspiration and then establish the theoretical model of this study.

3.1 Trust

3.1.1 Constructs of trust

McKnight & Chervany (2000) agreed that rather than using unitary definition, trust should be understood by an interdisciplinary approach. Since the concept of trust is so broad, different definitions can be used to describe it. However, they argued that a typology of trust constructs can be appropriate to move research on trust forward. The basic components of trust should be agreed on, and there should be consistent definition of each component. Based on the previous work from prior researchers, they developed an interdisciplinary model of trust constructs and define each subconstructs in the model. By identifying similarities and distinguishing clearly among different concepts, the model creates order out of the mass of various concepts. Furthermore, the model is created by identifying how different trust types relate to one another. As the conceptual view of trust, the model and the definition are widely used in later researches.

Figure 1. Constructs of trust

Adapted from: McKnight & Chervany (2000)

As shown in Figure 1, trust is composed by four constructs, namely, disposition to trust, institution- based trust, trusting beliefs and trusting intention. The four constructs can be further divided into subconstructs (McKnight & Chervany, 2000).

Conceptualization of trust constructs 1. Disposition to trust

Disposition to trust means one is willing to depend on others in general situations. It refers to trust in a broad spectrum of situations instead of a specific condition. It’s a general inclination in which people think others are reliable and well-meaning typically (Wang, Ngamsiriudom & Hsieh, 2015). The general propensity to trust implying that one tends to rely on others no matter in whatever conditions, is the generalized reaction in one’s life experience. Disposition to trust is developed as people grow up and the tendency might be changed due to later experience in life.

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Faith in humanity means that one assumes that most people are good. It is the assumption of human beings. It refers to general others. Trusting stance can be regarded as a personal strategy to trust others.

The term means that one believes that sincere interaction with people can lead to desirable outcomes. In other words, a better relationship can be built by treating people as if they are reliable and well-meaning regardless of who they are or whether they are trustworthy or not. It also refers to the general assumption of others.

2. Trusting intentions

Trusting intentions refers to the willingness of the trustor to depend on the trustee. Though the trustee might lack of control, or negative outcomes might occur, the trustor can still feel relatively secure. Four elements of trusting intentions are identified based on the previous work. (1) Uncertainty and the possibility of risk always exists, making the trustor might suffer from greater loss that the expected benefits. (2) The core of trusting intention is dependency. The trustor is vulnerable to the actual behavior of the trustee because of the freedom to act. (3) The feeling of security means the trustor feels assured and comfortable in the relationship. (4) Trusting intentions is not based on the control or power over the other party. In other words, deterrence is not involved in it.

Willingness to depend means the trustor feel relatively secured when making oneself vulnerable to the trustee. The trustor relies on the trustee based on volition. Subjective probability means the trustor depend on the trustee based on the forecasts or the prediction.

3. Trusting beliefs

Trusting beliefs are the trustee’s attributes or traits that trustor perceives. In general, the trustee infers the characteristics of the trustee to make decisions. With the feeling of relative security, the trustor believes that the trustee has some traits that indicate the trustee is trustworthy. With the traits, the trustee can behave according to the trustor’s expectation, and the action will be beneficial to the trustor.

There is a link between trusting beliefs and trusting intention, and the relationship between the two constructs is strong. It is believed that trusting intentions and trusting beliefs tend to stay consistent (McKnight, Cummings & Chervany, 1998). In other words, it will be likely for the trustor to form a trusting intention towards the trustee if the trustor believes that the trustee is competent, benevolent, honest and predictable. Therefore, trusting belief is a function of trusting intention.

Trusting beliefs and trusting intention are grouped together as the composition of trust because they are considered highly related to each other (McKnight, Cummings & Chervany, 1998). The four subconstructs of trusting beliefs form a firm foundation of trust intentions.

Competence means the power or the ability. With the competence, the trustee can act in the trustor’s interest. In the context of e-commerce, the competence indicating that the seller can provide products/service with good quality. Benevolence means the trustor believes the trustee cares about the trustee. Usually the trustor is not considered opportunism. Integrity means the trustor is honest enough to fulfill commitment, tell the truth and act have faith in the contracts and agreements. Predictability means the behavior of the trustee is consistent enough to be forecast. The consistency of the behavior can confirm the trustor the trustee’s future behavior can be predicted.

4. Institution-based trust

Institution-based trust means that the trustor believes that favorable conditions are in place so that people can take actions and make efforts to achieve their expected goals (Kim, 2012). Institution-based trust is the trust on the impersonal level, indicating beliefs about the situation and structures. That is, institution- based trust is not determined by interpersonal factors, but by the external situation or environment (McKnight & Chervany, 2001).

Structural assurance refers to protective structures, such as governmental enforcements, regulations, contracts or other legal approaches are in place in a specific situation. With structural assurance, trusting

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intention can be built because the trustor can perceive the feeling of security from the structured environment. With the guarantee of situations, structures or roles, people can trust one another. The reason is that the trustor is not afraid of being harmed by the trustee due to the presence of laws and institutions. And the trustor believes that the trustee will not behave illegally because of the punishment.

Situational normality means one believes others and anticipate success in a situation that is normal, customary or in proper order. People tend not to trust others in abnormal situations because such situation itself is perceived untrustworthy.

3.1.2 Initial trust

As it is believed by many researchers in the research field of e-commerce, trust is the antecedent of the first purchase. For the sellers who don’t have a famous brand, it is important to gain initial trust from the buyer. Kim (2012) divided the initial trust building process into four stage. First, the buyer seeks relevant information. Second, the decision is made based on the information in the last stage. Third, the buyer enters a trust relationship if the seller is considered trustworthy. But the relationship is temporary and initial. In the fourth stage, the buyer intends to purchase. If the result is satisfactory, a deeper trust relationship, which can be called ongoing trust will be built. That is, the buyer will repurchase from the seller in the future. Otherwise, the buyer will distrust the seller and have no more purchase behavior after the first transaction.

3.1.2.1 The sources of initial trust

Four sources of initial trust have been identified by McKnight et al. (1998).

1. Faith in the humanity

In an environment where the relationship, the situation and the other parties is new, if the trustor cannot find other clues to convince himself that the trustee is trustworthy, the trustor will rely on his general belief about human nature. Such kind of personality has already formed before the first meet with the trustee. It means faith in the humanity, which is based on the trustor’s existing personality, can help to build up trust before the evidence provided by experience (Mayer, Davis & Schoorman, 1995). Since the personality is the personal characteristic of individuals, faith in the humanity has already existed before a trust relationship. That is, the formation in the humanity is the antecedent of initial trust.

2. Institution-based trust

The presence of impersonal structures in the situation makes individuals believe that is it possible to make efforts to achieve future success. When the trustor feels the situation is normal and external safeguards are in place, the trustor will build trust relationship with the trustee. The formation of the belief in structural assurance and situational normality is the general recognition of institutional situations, and it does not require a lot time. Thus, institution-based trust is influential especially in the beginning of a new relationship when the information about the other party is limited.

3. Calculative trust

As a personal strategy, trusting stance derives from calculative trust. Individuals make trust decisions based on the assessment of costs and benefits by rational evaluation process. The evaluation originates from the economic analysis. The result of the calculation influences trust in the relationship. Low prediction of benefits might result in low level of trust.

4. Cognitive trust

Cognitive trust depends on second-hand knowledge in a relationship. Second-hand knowledge means the information is not gathered by the direct interaction with the other party. The trustworthiness of the trustee is assessed by the trustor’s rapid cognition without interaction history. The evaluation is based on cues that observed by the trustor. Clues such as reputation and the first impression, forms one’s

The Generation and Development of Trust in the Sharing Economy: From the seller's perspective

Master’s Thesis 30 credits September 2020

The Generation and Development of Trust in the Sharing Economy

From the seller’s perspective Fei Shuyue

Master’s Programme in Industrial Management and Innovation

Masterprogram i industriell ledning och innovation

Abstract

The Generation and Development of Trust in the Sharing Economy

Popular Science Summary

Acknowledgments

Table of contents

List of Figures

List of Tables

Abbreviations

1 Introduction

2 Literature Review

3 Theoretical framework