Scamming and the Reputation of Drug Dealers on Darknet Markets

Abstract: In this paper I investigate the role of e-reputation mechanisms on illegal platforms that specialize in drug sales. I ask whether online reputation systems can limit the risk of scamming (i.e. fraud) by dishonest sellers, and thus prevent Akerlof-like market destruction. I do so by analyzing all published offers on the second-largest platform operating on March 18th 2017 (Hansa). Three types of drugs show relatively low scamming risks, with the average probability that a random seller effectively send the ordered good of over 83%. The recent shutdowns of the two leading platforms are likely to increase this probability by 2.7 to 9.7%. Endogeneity may either lead us to overestimate the effect of e-reputation mechanisms (e.g., unobserved heterogeneity in sellers) or underestimate it (e.g., better-functioning markets may attract more scammers).

Keywords: Darknet markets; Hansa; e-reputation; scamming; drug price; honesty (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-com and nep-hea
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Published in International Journal of Industrial Organization, 2019, 67, ⟨10.1016/j.ijindorg.2019.102523⟩

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Journal Article: Scamming and the reputation of drug dealers on Darknet Markets (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-02180182

DOI: 10.1016/j.ijindorg.2019.102523

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