Word-of-mouth reputation systems create high entry barriers that technology-based regimes lower.
Evidence
Although trade practices and customs have remained largely unaffected by the shift from a homogeneous-group-based contractual regime toward one that is based increasingly on information technology, the change could radically affect the economic structure of the industry. In a homogeneous-group-based contractual regime, developing a reputation for trustworthiness and fair dealing takes time since reputation information is communicated solely by world of mouth and depends largely on personal contacts. This results in high barriers to entry. — Lisa Bernestein, Opting out of the Legal System, 209
Categorization
- XREF: Connects to the reader’s analysis: Bellodi’s evidentiary block in dense communities is the dark side of the same mechanism — reputation gatekeeping that new entrants must pay to overcome. — connects to: Dense-group conditions are needed to start but not to sustain reputation regimes. — Lisa Bernestein, Opting out of the Legal System, 179; Open publication of a financial model drives its adoption over better but proprietary rivals. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 727