As an intermediary improves trust between the 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. In this paper, we investigate the relationship between increased trust and disintermediation by leveraging a randomized control trial in an online freelance marketplace. We find that enhanced trust increases the likelihood of high-quality freelancers being hired. However, when the trust level is sufficiently high, 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. We discuss strategies that intermediaries can use to mitigate the tension between trust building and disintermediation.
A buffet lunch will be available at 11:45 am. The talk will begin at 12:00 pm.