Three essays on trust, geography and price in online market

My dissertation studies the trust, geography and the price pattern in the online market, utilizing a new random sample dataset provided by Taobao which is the dominant online retail market in China. The first chapter examines the impact of online trust on the geography of online trade flow and finds that the online trust mitigates the distance and border effect at province level. The second chapter investigates the impact of warranties on the return to seller reputation, and finds that the buyer protection program significantly reduces the price premium caused by seller reputation.;The third chapter looks at the impact of physical distance on the price discount, and finds that there is existing price discrimination by distance in online market. The first chapter is titled "Trust and the Geography of Online Trade: Evidence from China," a paper co-authored with Zhongmin Wang. This paper investigates the impact of trust on the impact of geography on the transaction volume in online market. We find that distance has a significantly negative effect on online trade flow and there is a strong home bias. Building buyers' trust of sellers is vital for developing online platform. Our paper presents evidence that trust affects the geography of online trades, reducing both the distance and border effect in the gravity model. Our evidence comes from the largest online retail market in China and we proxy buyers' trust of sellers not only by sellers' feedback ratings but also by the type of buyer protection programs. We find strong evidence that both the distance effect and the province-border effect are smaller for sellers with higher feedback ratings or sellers offering better buyer protection program.;The second chapter is titled "Do Warranties Reduce the Return to Seller Reputation in Online Market? Evidence from Taobao." This paper employs instrument variable method to estimate the impact of buyer protection program on the price premium caused by seller reputation. There is moral hazard, adverse selection and even market failure due to information asymmetry in online market. The seller reputation mechanism is developed to signal the quality and disclose seller's credibility. The buyer protection program is implemented to police this market while there is dispute. But it is optional for sellers on Taobao can choose to participate in any programs, which results in the endogeneity problem. I instrument program by using the share of warranties used by other sellers with same seller category. The findings indicate that the both seller reputation and buyer protection program positively related to transaction price, but the introduction of buyer protection program reduces the return to seller reputation significantly.;The third chapter is titled "The Price Discrimination in Online Market: The Effect of Geographical Distance." This paper estimates the impact of the geographic distance on the price discount in the online market. I use a simple duopoly model with product differentiation to understand the distance effect on price discrimination. The more information the sellers have about the buyers, the more surplus sellers are able to extract from buyers. Taobao facilitates the sellers to learn about buyer from the unique pre-purchasing chatting and buyer's profile. The results indicate that distance positively reduces transaction price and sellers are more likely to offer a better price for expensive or repeated purchased product to a distant buyer. The distance contributes to greater discount for a sophisticated buyer than novice.