Uncertainty in online markets

Sammanfattning: This thesis examines how asymmetric information causes issues in online markets and how it leads to mispricing between buyers and sellers. Asymmetric information and its negative effect on traditional markets have been examined by earlier studies but we strive to test the the theory on an online market. This is tested by looking at how review systems affects the market and whether this information can mitigate the problem of asymmetric information. This is done by looking at data from Airbnb and from this data we build a multivariate regression to see how reviews affect prices. Our results show that a higher review score corresponds to a higher price and this indicates that buyers value the information provided by the review system. We can also see that an increase in the number of reviews has a significant impact on prices and this allows us to determine that asymmetric information is a problem in the market. By observing this we can conclude that online markets are affected by asymmetric information and that review systems is a method for mitigating the problem. The study does not include time series data or data from other online markets.