A Cultural Analysis of the Difference Between Interpersonal Trust and Institutional Trust

Abstract

The developing world’s electronic commerce potential is huge. However, it has been demonstrated that successful e-business models from developed countries do not seem to transfer well to developing countries. For example, eBay does poorly in China. I argue one reason for this is because perceptions of trust differ across developing and developed nations. This, in turn, requires a different design for e-commerce markets. This paper focuses on the impact of trust perception on infrastructure in Chinese ecommerce. I do a price comparison of Taobao (an institutional trust-based electronic market) and WeChat (an interpersonal trust-based electronic market) on 35 products purchased from outside China. I show that WeChat sellers can command higher prices than Taobao sellers, demonstrating how interpersonal trust commands a price premium for sellers in China. I then show that, with the exception of sellers of luxury goods, Taobao sellers without any trust labels command a higher price than Taobao sellers with one or more trust labels. This suggests Chinese only respond to trust labels when luxury goods are sold. But this is not statistically significant. I also show that WeChat sellers I had no affiliation with command higher prices than Taobao sellers, which suggests that just being on WeChat (interpersonal trust) market allows a seller to command a price premium over being on Taobao (institutional trust) market.