Lock-in effects in Online Labor Markets, with Lars Hornuf and Eliza Stenzhorn.
[Latest Version] · [CESifo Working Paper] 

Online platforms that implement reputation mechanisms to facilitate transactions and build trust in the market usually prevent the transfer of ratings to other platforms, leading to lock-in effects and high switching costs for users. This situation can be capitalized by platforms, for example, by charging higher fees to their users. In this paper, we theoretically and experimentally investigate the effects of platform pricing on workers' switching behavior in online labor markets and analyze whether a policy regime with reputation portability could mitigate lock-in effects and reduce the likelihood of worker capitalization by the platform. We further examine switching motives more thoroughly and differentiate between monetary motives and fairness preferences. Theoretically, we show the existence of switching costs faced by workers if reputation mechanisms are platform-specific. The model predicts that reputation portability lowers switching costs, eliminating the possibility for platforms to capitalize lock-in effects. We test our predictions using an online lab-in-the-field experiment. The results are in line with our model and suggest that the absence of reputation portability leads to worker lock-in, which can be capitalized by platforms. Moreover, reputation portability has a positive impact on the wages of highly rated workers. The data further show that the switching of workers is primarily driven by monetary motives, but perceiving the fee as unfair also plays a significant role. Finally, we find that workers lower their effort levels after a fee is introduced.